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

Previous problemNext problem

Struggling with Financial Accounting?

Join thousands of students who trust us to help them ace their exams!Watch the first video

Multiple Choice

Under both perpetual and periodic inventory systems, how does an increase in inventory holding cost per unit affect the per-unit profit, assuming all other factors remain constant?

Per-unit profit increases because inventory is valued higher.

Per-unit profit decreases because total costs increase.

Per-unit profit is only affected under the periodic system, not the perpetual system.

Per-unit profit remains unchanged because holding costs are not included in cost of goods sold.

Previous problemNext problem

Verified step by step guidance

Understand the concept of inventory holding cost: Inventory holding cost refers to the cost associated with storing and maintaining inventory over a period of time. This cost is not directly included in the cost of goods sold (COGS) but is part of the total cost of inventory management.

Analyze the relationship between inventory holding cost and per-unit profit: Per-unit profit is calculated as the selling price per unit minus the total cost per unit. If inventory holding costs increase, the total cost per unit increases, which can reduce the per-unit profit, assuming the selling price remains constant.

Distinguish between perpetual and periodic inventory systems: Under both systems, inventory holding costs are not directly included in the COGS calculation. However, they still impact the overall profitability of the business by increasing total costs.

Evaluate the given options: The correct answer is that per-unit profit decreases because total costs increase. This is because an increase in inventory holding costs raises the total cost per unit, reducing the profit margin.

Conclude the reasoning: Holding costs are not part of COGS but are part of total costs. Therefore, the increase in holding costs affects profitability under both perpetual and periodic systems, leading to a decrease in per-unit profit.