Which of the following costs would be included in product costs for inventory valuation?

• A. Direct labor
• B. Advertising expense
• C. Customer service costs
• D. Sales salaries

Answer: (A)

Product costs for inventory valuation consist of costs tied directly to producing goods: direct materials, direct labor, and manufacturing overhead. Direct labor is wages of workers who actually transform materials into the product, so it is included in inventory cost and capitalized on the balance sheet until the product is sold. The other items are not tied to production: advertising is a selling expense, customer service costs are post-sale service costs, and sales salaries are selling expenses. These are expensed in the period they occur and do not become part of inventory. So, direct labor is the cost that would be included in product costs for inventory valuation.