Which of the Following Correctly Describes the Accounting for Advertising

question 58

Multiple Choice

Which of the following correctly describes the accounting for advertising costs?

• A) Advertising costs are product costs and are expensed as incurred.
• B) Advertising costs are period costs and are expensed as incurred.
• C) Advertising costs are product costs and are expensed when the manufactured product is sold.
• D) Advertising costs are period costs and are expensed when the manufactured product is sold.

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Definitions:

Profit Margin

Profit margin is a financial metric showing the percentage of revenue that remains as profit after all operating expenses are deducted from sales.

Investment Turnover

A ratio that measures the efficiency of a company’s use of its assets in generating sales or revenue; the ratio of net sales to average total assets.

Transfer Prices

Prices charged for the selling of goods and services between subsidiaries or divisions within the same company.

Variable Cost

Expenses that change in proportion to the level of production or business activity.