Which of the Following Statements Concerning Product and Period Costs

question 30

Multiple Choice

Which of the following statements concerning product and period costs is incorrect?

• A) The basis of the distinction between product and period costs is the timing of the recognition of an expense in the income statement.
• B) Service businesses have both period and product costs.
• C) Product costs are included in the cost of inventories until the products are sold.
• D) Period costs are not directly required to produce the product.

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Definitions:

Paying Interest

The act of compensating lenders for the use of their funds, typically expressed as a percentage of the principal amount borrowed.

Fixed Assets

Long-term tangible assets that are used in the operations of a business and are not expected to be converted to cash in the short term, such as property, plant, and equipment.

Investing Activities

Activities such as purchase and sale of plant and equipment and placing excess cash in stocks, bonds, and notes of other companies.

Purchase

A Purchase refers to the acquisition of goods or services in exchange for money, contributing to the assets or expenses of a business.