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

Question

Quizplus · Accepted Answer

The classification of costs into product versus period determines whether a cost should be expensed as a period cost (related to the current period's sales) or capitalized as a product cost (included in inventory and expensed only when the inventory is sold). This is especially relevant to manufacturing companies that produce products to be sold. The other choices (fixed versus variable, direct versus indirect, financial versus managerial, and service versus manufacturing) do not relate to the capitalization or expensing of costs.

A Classification of Costs That Determines Whether a Cost Is