In the context of inventory accounting, which of the following best describes 'target total cost'?

• A. The predetermined cost that a company aims to achieve for producing or purchasing inventory, including all associated expenses.
• B. The selling price of inventory items before deducting any expenses.
• C. The actual cost of goods sold calculated at the end of the accounting period under the periodic inventory system.
• D. The historical cost of inventory recorded at the time of purchase under the perpetual inventory system.

Answer: (A)

Verified step by step guidance

1. Understand the term 'target total cost' in the context of inventory accounting. It refers to the predetermined cost that a company aims to achieve for producing or purchasing inventory, including all associated expenses such as materials, labor, and overhead.
2. Eliminate the option that refers to the selling price of inventory items before deducting any expenses. This is unrelated to the concept of 'target total cost' as it focuses on revenue rather than cost.
3. Eliminate the option that describes the actual cost of goods sold calculated at the end of the accounting period under the periodic inventory system. This represents the realized cost, not the targeted or planned cost.
4. Eliminate the option that refers to the historical cost of inventory recorded at the time of purchase under the perpetual inventory system. Historical cost is a record of past transactions, not a predetermined target.
5. Conclude that the correct description of 'target total cost' is the predetermined cost that a company aims to achieve for producing or purchasing inventory, including all associated expenses.