Which of the Following Types of Interest Cost Incurred in Connection

question 77

Multiple Choice

Which of the following types of interest cost incurred in connection with the purchase or manufacture of inventory should be capitalized as a product cost?

• A) purchase discounts lost
• B) interest incurred during the production of discrete projects such as ships or real estate projects
• C) interest incurred on notes payable to vendors for routine purchases made on a repetitive basis
• D) interest on a building mortgage

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Definitions:

Raw Materials

The basic materials from which products are manufactured or made, typically used in the early stages of the production process.

On Account

Refers to purchases made or services rendered on a credit basis, implying that payment will be made at a future date.

Raw Materials Inventory

Stocks of basic materials that are used in the production process before undergoing manufacturing.

Work-in-Process Inventory

This refers to the goods that are in the middle of the manufacturing process but are not yet completed.