Which of the following costs are included in merchandise inventory under both the perpetual and periodic inventory systems?

• A. Advertising expenses
• B. Freight-in costs
• C. Sales commissions paid to sales staff
• D. Purchase price of goods

Answer: (D)

Verified step by step guidance

1. Understand the concept of merchandise inventory: Merchandise inventory includes all costs incurred to acquire goods and prepare them for sale. These costs are capitalized as part of inventory until the goods are sold.
2. Identify the costs that are directly related to acquiring inventory: Freight-in costs and the purchase price of goods are directly related to bringing inventory to its intended location and condition for sale. These costs are included in merchandise inventory under both perpetual and periodic inventory systems.
3. Exclude costs that are not directly related to inventory acquisition: Advertising expenses and sales commissions are considered period costs. They are expensed in the period incurred and are not included in merchandise inventory.
4. Understand the difference between perpetual and periodic inventory systems: Both systems account for inventory costs similarly when it comes to capitalizing freight-in costs and purchase price. The main difference lies in how inventory updates are recorded (perpetual updates continuously, periodic updates at the end of the period).
5. Summarize the included costs: Under both inventory systems, the purchase price of goods and freight-in costs are included in merchandise inventory, as they are necessary to acquire and prepare the goods for sale.