During the year, TRC Corporation has the following inventory transactions: purchases of 1,000 units, sales of 800 units, and a beginning inventory of 200 units. Under the perpetual inventory system, how is the Cost of Goods Sold (COGS) determined?

• A. COGS is updated continuously after each sale, reflecting the cost of the specific inventory sold.
• B. COGS is determined by averaging the cost of all inventory purchases during the year.
• C. COGS is not affected by the timing of inventory purchases or sales.
• D. COGS is calculated only at the end of the period based on a physical count of inventory.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the perpetual inventory system. In this system, inventory records are updated continuously after each transaction, including purchases and sales. This means that the Cost of Goods Sold (COGS) is updated immediately after each sale.
2. Step 2: Identify the inventory transactions provided in the problem. TRC Corporation has a beginning inventory of 200 units, purchases of 1,000 units, and sales of 800 units during the year.
3. Step 3: Recognize that under the perpetual inventory system, the COGS is calculated based on the cost of the specific inventory sold. This requires tracking the cost of each unit sold and updating the COGS after every sale.
4. Step 4: Note that the perpetual inventory system does not rely on averaging the cost of all inventory purchases or performing a physical count at the end of the period. Instead, it continuously reflects the cost of inventory sold in real-time.
5. Step 5: To determine the COGS, you would need to know the cost assigned to each unit sold (e.g., using methods like FIFO, LIFO, or specific identification) and update the COGS after each sale transaction.