Multiple Choice
In a periodic inventory system, beginning inventory plus net purchases equals which of the following?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
Multiple Choice
In financial accounting, which of the following costs is typically included in Cost of Goods Sold (COGS) for a merchandising company?
A
Selling expenses such as advertising, sales commissions, and delivery costs to customers (freight-out).
B
The cost of inventory items that were sold during the period (e.g., purchase price plus freight-in, net of purchase discounts).
C
Administrative expenses such as office salaries, accounting fees, and utilities for headquarters.
D
Interest expense on loans used to purchase inventory.
Verified step by step guidance1
Step 1: Understand the definition of Cost of Goods Sold (COGS). COGS represents the direct costs attributable to the production or purchase of the goods that a company sells during a specific period.
Step 2: Identify the types of costs that are directly related to acquiring or producing inventory. These typically include the purchase price of inventory, freight-in (shipping costs to bring inventory to the company), and any purchase discounts that reduce the cost.
Step 3: Recognize that selling expenses such as advertising, sales commissions, and freight-out (delivery costs to customers) are not included in COGS because they are considered operating expenses related to selling activities, not the cost of acquiring inventory.
Step 4: Understand that administrative expenses like office salaries, accounting fees, and utilities for headquarters are also excluded from COGS because they are general overhead costs not directly tied to inventory.
Step 5: Note that interest expense on loans used to purchase inventory is a financing cost and is not included in COGS; it is reported separately as an interest expense on the income statement.
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