Direct Material and Direct Labor Costs Are Assigned to Inventory

question 21

Multiple Choice

Direct material and direct labor costs are assigned to inventory when using I. Absorption costing
II. Throughput costing
III. Variable costing

• A) I and III only
• B) I and II only
• C) II and III only
• D) I, II, and III

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Definitions:

Depreciation Expense

The allocation of the cost of tangible assets over their useful lives.

Indirect Method

A method used for the preparation of the cash flow statement which adjusts net income for changes in balance sheet accounts to calculate the cash from operating activities.

Operating Activities

These involve the primary, day-to-day actions that generate revenue and incur expenses in the normal course of business, reflected in the cash flows from operations section of the statement of cash flows.

Current Assets

Assets that are expected to be converted into cash, sold, or consumed within one year or the business’s operating cycle, whichever is longer, such as cash, inventory, and receivables.