Which one of the following statements is true?Group of answer choicesPeriod costs are expensed in the period the product is sold.Period costs are initially inventoried, then expensed.Product costs are expensed in the period the product is sold.Product costs are expensed as the product is produced.
Question
Which one of the following statements is true?Group of answer choicesPeriod costs are expensed in the period the product is sold.Period costs are initially inventoried, then expensed.Product costs are expensed in the period the product is sold.Product costs are expensed as the product is produced.
Solution
The true statement is: "Product costs are expensed in the period the product is sold."
Here's why:
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Period costs are not initially inventoried, then expensed. They are costs that are not directly tied to a product and are expensed in the period they are incurred. So, the first and second statements are false.
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Product costs are all costs involved in acquiring or making a product. In the case of manufactured goods, these costs consist of direct material, direct labor, and manufacturing overhead. They are initially assigned to an inventory account on the balance sheet and do not become expenses until the product is sold. So, the third statement is true and the fourth statement is false.
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