When an Inventory Item That Cost $75 Is Sold on Account

question 39

Multiple Choice

When an inventory item that cost $75 is sold on account for $100, which of the following would be included in the journal entry recording the cost of goods sold?

• A)Dr.Cash $100
• B)Cr.Cost of goods sold $75
• C)Cr.Accounts Receivable $100
• D)Cr.Inventory $75

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Definitions:

Activity-Based Costing

A costing methodology that assigns costs to products based on the amount of resources used for specific activities, such as manufacturing or selling.

Direct Labor-Hours

The total hours worked by employees directly involved in the manufacturing process of a product.

Activity-Based Costing

A costing method that assigns overhead and indirect costs to specific activities, enhancing cost precision.

Overhead Cost

Indirect costs of business operations, such as lighting, rent, and administrative salaries, not directly tied to a specific product or service.