GAAP for financial reporting requires that a manufacturer's inventory on the balance sheet and cost of goods sold on the income statement consist of: the cost of direct materials, the cost of direct labor, and
A) the cost of shipping.
B) the cost of sales, general and administration (SG&A).
C) the cost of manufacturing overhead.
D) the expense of IT.

Question

Quizplus · Accepted Answer

GAAP requires that inventory and cost of goods sold include direct materials, direct labor, and manufacturing overhead. Manufacturing overhead includes all costs associated with the production process that are not directly traceable to the product, such as factory rent, utilities, and equipment depreciation, but does not include shipping, SG&A expenses, or IT expenses, which are considered operating expenses.

GAAP for Financial Reporting Requires That a Manufacturer's Inventory on the Balance