Which of the following statements is correct?

Question

Quizplus · Accepted Answer

Product costs (direct materials, direct labor, and manufacturing overhead) are included in inventory until the product is sold. Once sold, these costs are transferred from inventory to cost of goods sold. Period costs, on the other hand, are expensed in the period they are incurred (e.g. rent, salaries, marketing expenses). Choice A is incorrect because retailers can have product costs (e.g. cost of goods purchased) and period costs (e.g. rent). Choice C is incorrect because finished goods inventory only includes the cost of goods completed, not the cost of raw materials. Choice D is incorrect because manufacturing overhead costs are part of product costs and are allocated to individual products through a predetermined overhead rate.

Which of the Following Statements Is Correct