Which of the following is the most important reason for calculating individual product costs in a company's inventory system?

• A. To estimate future sales revenue
• B. To comply with tax regulations regarding payroll
• C. To determine the cost of goods sold and accurately report inventory values
• D. To calculate the company's total liabilities

Answer: (C)

Verified step by step guidance

1. Understand the purpose of calculating individual product costs in a company's inventory system. This involves identifying how product costs impact financial reporting and decision-making.
2. Recognize that individual product costs are essential for determining the cost of goods sold (COGS). COGS is a key component in calculating gross profit and is reported on the income statement.
3. Understand that accurate product costing is necessary for inventory valuation. Inventory is reported as an asset on the balance sheet, and its valuation must comply with accounting standards.
4. Consider the implications of incorrect product costing. Misstated inventory values can lead to errors in financial statements, affecting stakeholders' trust and compliance with regulations.
5. Conclude that the most important reason for calculating individual product costs is to determine the cost of goods sold and accurately report inventory values, as this directly impacts financial reporting and compliance.