In a perpetual inventory system, standard costs are used in the calculation of which of the following?

• A. Total sales revenue for the period
• B. Accounts receivable balances
• C. Cost of Goods Sold at the time of each sale
• D. Ending inventory only at the end of the period

Answer: (C)

Verified step by step guidance

1. Understand the perpetual inventory system: In this system, inventory records are updated continuously to reflect purchases and sales. It contrasts with a periodic inventory system, where updates occur at the end of a period.
2. Recognize the role of standard costs: Standard costs are predetermined estimates of the cost of goods sold (COGS) and inventory, used for budgeting and performance evaluation.
3. Identify the connection between standard costs and COGS: In a perpetual inventory system, standard costs are applied to calculate the cost of goods sold at the time of each sale. This ensures that the inventory and COGS are updated in real-time.
4. Clarify why standard costs are not used for other options: Standard costs are not directly used to calculate total sales revenue, accounts receivable balances, or ending inventory at the end of the period. These items are determined by other factors, such as sales prices and actual transactions.
5. Conclude the application: The correct answer is that standard costs are used to calculate the Cost of Goods Sold at the time of each sale in a perpetual inventory system, ensuring accurate and timely financial reporting.