Multiple Choice
Which of the following costs is NOT recorded as part of the cost of a building?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
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Which inventory system provides the most accurate and up-to-date Cost of Goods Sold (COGS) figure for use in Cost-Volume-Profit (CVP) analysis calculations?
A
Specific identification method
B
Perpetual inventory system
C
Weighted average method (periodic)
D
Periodic inventory system
Verified step by step guidance1
Understand the purpose of the Cost-Volume-Profit (CVP) analysis, which is to analyze how costs, sales volume, and price affect profitability. Accurate and up-to-date Cost of Goods Sold (COGS) is critical for this analysis.
Review the inventory systems provided in the problem: Specific identification method, Perpetual inventory system, Weighted average method (periodic), and Periodic inventory system.
Analyze the perpetual inventory system. This system continuously updates inventory records and COGS after each transaction, providing real-time data. This makes it highly suitable for CVP analysis, which requires timely and accurate cost information.
Compare the periodic inventory system and weighted average method (periodic). These systems update inventory and COGS only at the end of the accounting period, which may result in outdated figures during the period and less accuracy for CVP analysis.
Conclude that the perpetual inventory system is the most accurate and up-to-date for calculating COGS in CVP analysis, as it provides real-time updates after each transaction.
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