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Inventory and costs classification, discounts, interest

1. Which of the following is correct?

a. Selling costs are product costs.
b. Manufacturing overhead costs are product costs.
c. Interest costs for routine inventories are product costs.
d. All of these.

2. All of the following costs should be charged against revenue in the period in which costs are incurred except for

a. manufacturing overhead costs for a product manufactured and sold in the same accounting period.
b. costs which will not benefit any future period.
c. costs from idle manufacturing capacity resulting from an unexpected plant shutdown.
d. costs of normal shrinkage and scrap incurred for the manufacture of a product in ending inventory.

3. Which of the following types of interest cost incurred in connection with the purchase or manufacture of inventory should be capitalized as a product cost?

a. Purchase discounts lost
b. Interest incurred during the production of discrete projects such as ships or real estate projects
c. Interest incurred on notes payable to vendors for routine purchases made on a repetitive basis
d. All of these should be capitalized.

4. The use of a Discounts Lost account implies that the recorded cost of a purchased inventory item is its

a. invoice price.
b. invoice price plus the purchase discount lost.
c. invoice price less the purchase discount taken.
d. invoice price less the purchase discount allowable whether taken or not.

5. The use of a Purchase Discounts account implies that the recorded cost of a purchased inventory item is its

a. invoice price.
b. invoice price plus any purchase discount lost.
c. invoice price less the purchase discount taken.
d. invoice price less the purchase discount allowable whether taken or not.

Solution Preview

1. Which of the following is correct?

b. Manufacturing overhead costs are product costs.

2. All of the following costs should be charged against revenue in the period in which costs are incurred except for

d. costs ...

Solution Summary

This post answers five multiple choice questions.

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