Which of the following is TRUE of product costs?
A) They are expensed in the period they are paid.
B) For external reporting, GAAP requires that they be expensed before the products are sold.
C) They are first recorded in an inventory account.
D) For merchandising companies, product costs do not include freight costs.

Question

Quizplus · Accepted Answer

Product costs are initially recorded in an inventory account for both manufacturing and merchandising companies. This includes the cost of direct materials, direct labor, and manufacturing overhead (for manufacturing companies) or the cost of purchasing merchandise (for merchandising companies).

Option A is incorrect because product costs are not necessarily expensed in the period they are paid, as some costs may be incurred earlier or later than payments.

Option B is incorrect because GAAP requires that product costs be expensed when the products are sold, not before.

Option D is incorrect because freight costs are a part of product costs for both manufacturing and merchandising companies.

Which of the Following Is TRUE of Product Costs