Multiple Choice
Which of the following costs are included in merchandise inventory under both the perpetual and periodic inventory systems?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
Multiple Choice
Which of the following costs would be included in the recorded cost of merchandise inventory under both the perpetual and periodic inventory systems?
A
Freight-out costs paid to deliver goods to customers
B
Interest expense on loans used to purchase inventory
C
Freight-in costs paid to bring inventory to the warehouse
D
Advertising expenses for promoting inventory
Verified step by step guidance1
Understand the concept of merchandise inventory cost: Merchandise inventory cost includes all costs necessary to acquire the inventory and prepare it for sale. This typically includes purchase price, freight-in costs, and any other costs directly attributable to bringing the inventory to its location and condition for sale.
Differentiate between freight-in and freight-out costs: Freight-in costs are incurred to bring inventory to the warehouse and are included in the cost of inventory. Freight-out costs, on the other hand, are expenses related to delivering goods to customers and are treated as selling expenses, not part of inventory cost.
Analyze interest expense: Interest expense on loans used to purchase inventory is not included in the cost of inventory. Instead, it is recorded as a financing cost in the income statement.
Evaluate advertising expenses: Advertising expenses are considered selling and administrative expenses. They are not directly related to acquiring or preparing inventory for sale, so they are excluded from the cost of inventory.
Conclude that freight-in costs are included in the recorded cost of merchandise inventory under both perpetual and periodic inventory systems, as they are directly related to bringing inventory to the warehouse and preparing it for sale.
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