Question

In a traditional enterprise, the flow of costs through the system is:

Answer 1

Answer:

c. materials inventory, work-in-process inventory, finished goods inventory, cost of goods sold.

Explanation:

Costs are not static, they are dynamic, therefore, they move through the value chain.

It all begins with the cost of raw materials that push the whole chain. Afterwards, the cost moves to the work-in-process inventory. When the goods are finished, the cost moves to finished goods inventory, with the storing cost firstly in mind. Lastly, the cost resides with the cost of goods sold, with the added costs of distribution and sales.

Accounting-wise, the flow of cost introduces the LIFO and FIFO systems, which relate to the way how cost is managed throughout the flow - backward or forward.