Which inventory system is more likely to result in inaccurate costing, such as undercosting standard products and overcosting specialty products, due to its reliance on periodic allocation of costs?

• A. Just-in-time inventory system
• B. Periodic inventory system
• C. Perpetual inventory system
• D. Specific identification method

Answer: (B)

Verified step by step guidance

1. Understand the key characteristics of each inventory system mentioned in the problem: Just-in-time inventory system, Periodic inventory system, Perpetual inventory system, and Specific identification method.
2. Recognize that the Periodic inventory system relies on periodic allocation of costs, meaning inventory and cost of goods sold are updated only at the end of an accounting period, which can lead to inaccuracies in costing.
3. Compare the Periodic inventory system to the Perpetual inventory system, which updates inventory and cost of goods sold continuously, reducing the likelihood of costing inaccuracies.
4. Analyze why the reliance on periodic allocation of costs in the Periodic inventory system can result in undercosting standard products and overcosting specialty products due to the averaging of costs over the period.
5. Conclude that the Periodic inventory system is more likely to result in inaccurate costing compared to the other methods listed, based on its inherent reliance on periodic cost allocation.