A classification of costs that determines whether a cost is expensed to the income statement or capitalized to inventory is:
A) Direct versus indirect.
B) Fixed versus variable.
C) Service versus manufacturing.
D) Financial versus managerial.
E) Product versus period.

Question

Quizplus · Accepted Answer

The classification of costs into product versus period determines whether they are expensed immediately to the income statement (period costs) or capitalized to inventory and expensed when the inventory is sold (product costs). Direct versus indirect costs refer to how the cost is incurred, not whether it is capitalized or expensed. Fixed versus variable costs refer to how the cost behaves with changes in activity levels. Service versus manufacturing costs refers to the type of business operation. Financial versus managerial costs refer to the purpose of the cost (i.e. financial reporting or internal management decisions).

A Classification of Costs That Determines Whether a Cost Is