If a Retailer Regularly Sells Its Receivables to a Factor

question 7

Multiple Choice

If a retailer regularly sells its receivables to a factor the service charge of the factor should be classified as a(n)

• A) selling expense.
• B) interest expense.
• C) other expense.
• D) contra asset.

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Definitions:

Variable Costing

An accounting method that includes only variable production costs—such as materials, labor, and overhead—in the cost of goods sold, while fixed costs are expensed in the period they are incurred.

Fixed Overhead Cost

Costs that do not vary with production volume, such as rent, salaries, and insurance, and must be paid regardless of the level of output or sales.

Ending Inventory

The value of goods available for sale at the end of an accounting period, which will be carried over as the beginning inventory for the next period.

Variable Costing

An accounting method that only considers variable costs (costs that change with production volume) in the cost of production, excluding fixed costs.