Cost of Goods Sold MCQs
What is the Cost of Goods Sold (COGS)?
a) The total cost of producing goods or services
b) The total cost of goods available for sale
c) The total cost of goods sold during a specific period
d) The total cost of raw materials used in production
Answer: c) The total cost of goods sold during a specific period
Which of the following costs are included in the calculation of COGS?
a) Administrative expenses
b) Sales commissions
c) Marketing expenses
d) Direct labor costs
Answer: d) Direct labor costs
How is COGS calculated?
a) Beginning inventory + Purchases – Ending inventory
b) Beginning inventory – Purchases + Ending inventory
c) Beginning inventory + Purchases + Ending inventory
d) Beginning inventory – Purchases – Ending inventory
Answer: a) Beginning inventory + Purchases – Ending inventory
True or False: COGS is an expense on the income statement.
Answer: True
Which of the following items is not included in COGS?
a) Freight-in costs
b) Sales discounts
c) Direct materials
d) Manufacturing overhead
Answer: b) Sales discounts
Cost of Goods Sold MCQs with Answers
How does an increase in COGS affect a company’s gross profit margin?
a) Increases
b) Decreases
c) Has no effect
d) Cannot be determined
Answer: b) Decreases
Which accounting method is commonly used to calculate COGS?
a) LIFO (Last In, First Out)
b) FIFO (First In, First Out)
c) Weighted average cost method
d) Specific identification method
Answer: b) FIFO (First In, First Out)
Which financial statement would you find COGS?
a) Income statement
b) Balance sheet
c) Statement of cash flows
d) Statement of retained earnings
Answer: a) Income statement
What does a high COGS indicate?
a) Inefficient cost control
b) Efficient cost control
c) High profitability
d) Low profitability
Answer: a) Inefficient cost control
Which of the following is an example of a variable cost that can be included in COGS?
a) Rent expense
b) Depreciation expense
c) Direct labor wages
d) Advertising expense
Answer: c) Direct labor wages
Cost of Goods Sold MCQs / Accounting MCQs
Which of the following is not a component of COGS?
a) Direct labor costs
b) Direct material costs
c) Manufacturing overhead costs
d) Administrative expenses
Answer: d) Administrative expenses
True or False: COGS is subtracted from net sales to calculate gross profit.
Answer: True
Which inventory costing method assumes that the most recently purchased items are the first ones to be sold?
a) LIFO (Last In, First Out)
b) FIFO (First In, First Out)
c) Weighted average cost method
d) Specific identification method
Answer: a) LIFO (Last In, First Out)
How does a decrease in COGS affect a company’s net income?
a) Increases net income
b) Decreases net income
c) No effect on net income
d) Cannot be determined
Answer: a) Increases net income
Which of the following is an example of an indirect cost that is not included in COGS?
a) Factory maintenance costs
b) Packaging materials costs
c) Sales commissions
d) Raw material costs
Answer: c) Sales commissions
Cost of Goods Sold MCQs with Answers
What is the formula to calculate the gross profit margin?
a) Gross Profit / Net Sales
b) Gross Profit / COGS
c) Net Income / Net Sales
d) Net Income / Gross Profit
Answer: a) Gross Profit / Net Sales
Which of the following is an example of an industry with a high COGS relative to net sales?
a) Software development
b) Consulting services
c) Grocery retail
d) Advertising agency
Answer: c) Grocery retail
How does an increase in COGS affect a company’s inventory turnover ratio?
a) Increases the ratio
b) Decreases the ratio
c) No effect on the ratio
d) Depends on other factors
Answer: b) Decreases the ratio
True or False: COGS is recorded as an asset on the balance sheet.
Answer: False
Which of the following costs would be classified as part of COGS for a manufacturing company?
a) Research and development costs
b) Advertising expenses
c) Cost of machinery maintenance
d) Cost of direct labor used in production
Answer: d) Cost of direct labor used in production
Cost of Goods Sold MCQs Accounting Multiple Choice Questions
Which of the following inventory valuation methods assumes that each unit of inventory has the same cost?
a) LIFO (Last In, First Out)
b) FIFO (First In, First Out)
c) Weighted average cost method
d) Specific identification method
Answer: c) Weighted average cost method
How does an increase in COGS affect a company’s operating profit margin?
a) Increases
b) Decreases
c) Has no effect
d) Depends on other factors
Answer: b) Decreases
What is the impact on COGS when there is an increase in the price of raw materials?
a) Increases COGS
b) Decreases COGS
c) No effect on COGS
d) Depends on other factors
Answer: a) Increases COGS
Which of the following is not a period cost and is therefore not included in COGS?
a) Indirect labor costs
b) Factory rent expense
c) Direct materials costs
d) Sales salaries
Answer: c) Direct materials costs
How does an increase in COGS affect a company’s net profit margin?
a) Increases
b) Decreases
c) Has no effect
d) Depends on other factors
Answer: b) Decreases
Cost of Goods Sold MCQs / Most Important ACCOUNTING MCQs
Which of the following is an example of a non-manufacturing company where COGS is not applicable?
a) Automotive manufacturer
b) Restaurant chain
c) Clothing retailer
d) Construction company
Answer: b) Restaurant chain
What is the effect of a decrease in COGS on a company’s gross margin?
a) Increases gross margin
b) Decreases gross margin
c) No effect on gross margin
d) Depends on other factors
Answer: a) Increases gross margin
Which of the following is an example of an indirect cost that is included in COGS?
a) Advertising expenses
b) Sales salaries
c) Factory utilities
d) Cost of raw materials
Answer: c) Factory utilities
How does an increase in COGS affect a company’s inventory turnover ratio?
a) Increases the ratio
b) Decreases the ratio
c) No effect on the ratio
d) Depends on other factors
Answer: b) Decreases the ratio
True or False: COGS includes the cost of goods that have been sold as well as those that are still in inventory.
Answer: False
Cost of Goods Sold MCQs and Answers
Which of the following inventory costing methods assumes that the cost of the earliest purchased items is allocated to goods sold first?
a) LIFO (Last In, First Out)
b) FIFO (First In, First Out)
c) Weighted average cost method
d) Specific identification method
Answer: b) FIFO (First In, First Out)
What is the impact of a decrease in COGS on a company’s operating income?
a) Increases operating income
b) Decreases operating income
c) No effect on operating income
d) Depends on other factors
Answer: a) Increases operating income
Which financial statement reports the COGS for a specific period?
a) Income statement
b) Balance sheet
c) Statement of cash flows
d) Statement of stockholders’ equity
Answer: a) Income statement
How does an increase in COGS affect a company’s profitability ratios?
a) Increases profitability ratios
b) Decreases profitability ratios
c) No effect on profitability ratios
d) Depends on other factors
Answer: b) Decreases profitability ratios
Which of the following is not a component of COGS for a service-based company?
a) Labor costs
b) Equipment depreciation
c) Raw material costs
d) Consumable supplies
Answer: c) Raw material costs
True or False: COGS is an important factor in determining a company’s taxable income.
Answer: True
Cost of Goods Sold Accounting MCQs
How does an increase in COGS affect a company’s working capital?
a) Increases working capital
b) Decreases working capital
c) No effect on working capital
d) Depends on other factors
Answer: b) Decreases working capital
Which of the following is an example of an industry with a low COGS relative to net sales?
a) Manufacturing of heavy machinery
b) E-commerce retail
c) Construction services
d) Pharmaceutical production
Answer: d) Pharmaceutical production
What is the impact of a decrease in COGS on a company’s cash flow from operating activities?
a) Increases cash flow from operating activities
b) Decreases cash flow from operating activities
c) No effect on cash flow from operating activities
d) Depends on other factors
Answer: a) Increases cash flow from operating activities
How does an increase in COGS affect a company’s return on assets (ROA)?
a) Increases ROA
b) Decreases ROA
c) No effect on ROA
d) Depends on other factors
Answer: b) Decreases ROA