Identify the False Statement Regarding How Product Costs in a Manufacturing

question 126

Multiple Choice

Identify the false statement regarding how product costs in a manufacturing company differ from product costs in a service or merchandising company.

• A) Both manufacturing companies and service companies incur costs for supplies.
• B) Manufacturing companies accumulate product costs in inventory accounts, while service companies do not.
• C) Products of service companies such as restaurants are consumed immediately.
• D) Most labor costs for merchandising companies are treated as product costs.

---

Definitions:

Quick Assets

Liquid assets immediately available to meet current liabilities, including cash, marketable securities, and accounts receivable.

Cash Equivalents

Short-term, highly liquid investments that are readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value due to changes in interest rates.

Product Warranty Expense

Costs associated with the repair or replacement of defective products during the warranty period.

Product Warranty Payable

A liability account that represents the amount a company expects to pay to repair or replace products under warranty.