Companies must assign all production costs and only production costs to products for external financial reporting purposes.

Question

Quizplus · Accepted Answer

This is a requirement of generally accepted accounting principles (GAAP) for external financial reporting. All costs incurred in the production process must be assigned to products in order to accurately determine the cost of goods sold and gross profit. Non-production costs, such as administrative and selling expenses, are not included in the cost of goods sold and are instead reported separately on the income statement.

Companies Must Assign All Production Costs and Only Production Costs