A Classification of Costs That Determines Whether a Cost Is

question 112

Multiple Choice

A classification of costs that determines whether a cost is expensed to the income statement or capitalized to inventory is:

• A)Fixed versus variable.
• B)Direct versus indirect.
• C)Financial versus managerial.
• D)Service versus manufacturing.
• E)Product versus period.

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Definitions:

Cost of Overstocking

The expenses associated with holding excessive inventory, such as storage costs, insurance, and potential obsolescence.

Cost of Understocking

The financial losses and opportunity costs incurred from not having sufficient inventory to meet demand, including lost sales and customer dissatisfaction.

Product Availability

The extent to which a product can be purchased by consumers, influenced by inventory levels and supply chain efficiency.

Forecast Error

The gap between real results and what was forecasted by predictive models.