Question

If the cost of goods sold is more than the cost of goods manufactured, then

A. Work in Process Inventory has increased.
B. Finished Goods Inventory has increased.
C. Finished Goods Inventory has decreased.
D. Work in Process Inventory has decreased.

Answer 1

C. Finished Goods Inventory has decreased.

Step-by-step explanation:

Cost of goods manufactured (COGM) increases when finished goods inventory is produced, while cost of goods sold (COGS) increases when finished goods inventory is sold. If COGS has been increasing faster than COGM has been increasing, the company has been selling more goods than it has been producing. Therefore, it must have sold goods from its surplus of finished goods inventory. Thus, finished goods inventory has decreased.