The Cost of Funds Invested in Inventories Is Measured by the ____

question 29

Multiple Choice

The cost of funds invested in inventories is measured by the ____.

• A) cost of insuring the inventory
• B) stockout costs
• C) required rate of return
• D) rate of interest on borrowed funds

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Definitions:

Raw Materials Inventory

A rephrased definition: Stock of basic materials awaiting use in the production process to create finished goods.

Direct Materials

Raw materials that are directly traceable to the manufacturing of a product and are considered a variable cost.

Indirect Materials

Materials used in the production process that cannot be directly linked to a specific product, such as lubricants and cleaning supplies used in machinery.

Factory Overhead

All indirect costs associated with manufacturing, excluding direct materials and direct labor, such as utilities, depreciation, and maintenance of factory equipment.