Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

4. Merchandising Operations

Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory

Financial Accounting

4. Merchandising Operations

Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory

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Multiple Choice

In the context of Cost of Goods Sold, what is a major focus for a company employing a low-cost business strategy under either the perpetual or periodic inventory system?

Maximizing inventory levels to ensure product availability

Increasing selling prices to improve profit margins

Minimizing the cost of goods sold to maximize gross profit

Focusing on high-cost, premium inventory items

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Verified step by step guidance

Understand the concept of Cost of Goods Sold (COGS): COGS represents the direct costs attributable to the production of goods sold by a company, including materials and labor. It is a critical component in calculating gross profit, which is revenue minus COGS.

Recognize the goal of a low-cost business strategy: Companies employing this strategy aim to minimize costs in order to offer competitive pricing and maximize gross profit. This involves reducing production costs, procurement costs, and other expenses related to inventory.

Analyze the inventory system used: Whether the company uses a perpetual inventory system (tracking inventory in real-time) or a periodic inventory system (updating inventory at intervals), the focus remains on minimizing COGS. This can be achieved by sourcing low-cost materials, optimizing production processes, and reducing waste.

Evaluate the impact on gross profit: Lowering COGS directly increases gross profit, as gross profit is calculated using the formula:

Gross Profit = Revenue - COGS

. A low-cost strategy ensures that the company retains more profit from each sale.

Avoid focusing on high-cost, premium inventory items: A low-cost business strategy typically avoids premium inventory items, as these can increase COGS and reduce gross profit margins. Instead, the focus is on cost-effective inventory management and efficient operations.