The traditional income statement uses which of the following cost categories?

• A. Manufacturing Overhead and Selling Expenses
• B. Raw Materials and Work in Process
• C. Direct Materials and Direct Labor
• D. Cost of Goods Sold and Operating Expenses

Answer: (D)

Verified step by step guidance

1. Understand the structure of a traditional income statement: It is divided into two main sections - revenues and expenses. Expenses are further categorized into cost of goods sold (COGS) and operating expenses.
2. Recognize that Cost of Goods Sold (COGS) represents the direct costs associated with producing goods sold by the company, including direct materials, direct labor, and manufacturing overhead.
3. Identify that Operating Expenses include costs not directly tied to production, such as selling expenses, administrative expenses, and other overhead costs.
4. Compare the given options to the categories used in a traditional income statement. Note that Manufacturing Overhead and Selling Expenses are components of COGS and Operating Expenses, respectively, but are not standalone categories in the income statement.
5. Conclude that the correct answer is 'Cost of Goods Sold and Operating Expenses,' as these are the primary cost categories explicitly presented in a traditional income statement.