Multiple Choice
Which of the following costs are most likely to be controllable at the production supervisor level in relation to Cost of Goods Sold under a perpetual or periodic inventory system?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
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Which of the following statements best describes how Cost of Goods Sold (COGS) is determined under the perpetual inventory system compared to the periodic inventory system?
A
Under both systems, COGS is only calculated at the end of the accounting period.
B
Under the perpetual inventory system, COGS is updated continuously with each sale, while under the periodic system, COGS is calculated at the end of the period.
C
COGS is always higher under the perpetual system than under the periodic system.
D
The perpetual inventory system does not track inventory purchases, while the periodic system does.
Verified step by step guidance1
Understand the concept of Cost of Goods Sold (COGS): COGS represents the direct costs attributable to the production of goods sold by a company, including the cost of materials and labor used to produce the goods.
Learn the difference between the perpetual and periodic inventory systems: The perpetual inventory system updates inventory records and COGS continuously with each transaction, while the periodic inventory system updates inventory and calculates COGS only at the end of the accounting period.
Analyze the statement 'Under the perpetual inventory system, COGS is updated continuously with each sale, while under the periodic system, COGS is calculated at the end of the period': This is correct because the perpetual system tracks inventory in real-time, whereas the periodic system requires a physical count and calculation at the end of the period.
Evaluate the statement 'COGS is always higher under the perpetual system than under the periodic system': This is incorrect because the method of inventory tracking does not inherently affect the amount of COGS; it depends on the accuracy of inventory records and calculations.
Assess the statement 'The perpetual inventory system does not track inventory purchases, while the periodic system does': This is incorrect because the perpetual system tracks inventory purchases continuously, while the periodic system records purchases in a separate account and updates inventory later.
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