Which of the following is a basic issue of inventory management in relation to Cost of Goods Sold under perpetual and periodic inventory systems?

• A. Calculating depreciation expense for inventory
• B. Determining the timing and amount of inventory purchases
• C. Allocating administrative expenses to inventory
• D. Choosing the appropriate method for recording inventory transactions

Answer: (D)

Verified step by step guidance

1. Understand the concept of inventory management: Inventory management involves tracking and controlling inventory levels, purchases, and sales to ensure efficient operations and accurate financial reporting.
2. Recognize the relationship between inventory management and Cost of Goods Sold (COGS): COGS is directly affected by how inventory is recorded and managed, as it represents the cost of inventory sold during a period.
3. Differentiate between perpetual and periodic inventory systems: The perpetual system continuously updates inventory records and COGS after each transaction, while the periodic system updates inventory and calculates COGS at the end of an accounting period.
4. Identify the basic issue in inventory management: The key issue is choosing the appropriate method for recording inventory transactions, as this decision impacts the accuracy of inventory records and COGS calculations under both systems.
5. Understand the implications of the chosen method: Selecting the right inventory recording method ensures proper tracking of inventory levels, accurate financial reporting, and compliance with accounting standards.