Multiple Choice
11. Under the perpetual inventory system, how is the cost of goods sold (COGS) determined when inventory is sold?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
Multiple Choice
Which of the following methods are commonly used for costing inventory under both perpetual and periodic inventory systems?
A
FIFO (First-In, First-Out)
B
Weighted Average Cost
C
LIFO Reserve
D
Specific Identification
Verified step by step guidance1
Understand the inventory costing methods mentioned in the problem: FIFO (First-In, First-Out), Weighted Average Cost, LIFO Reserve, and Specific Identification. These methods are used to determine the cost of goods sold and the value of ending inventory.
Recognize that inventory costing methods can be applied under both perpetual and periodic inventory systems. Perpetual systems continuously update inventory records, while periodic systems update inventory records at the end of an accounting period.
Analyze each method: FIFO assumes the oldest inventory items are sold first, Weighted Average Cost calculates an average cost for all inventory items, LIFO Reserve is an adjustment account used in LIFO method reporting, and Specific Identification tracks the cost of individual inventory items.
Determine which methods are commonly used under both systems. FIFO and Weighted Average Cost are widely applicable under both perpetual and periodic systems, as they are straightforward and align with inventory flow assumptions. Specific Identification can also be used under both systems but is typically applied to unique or high-value items.
Note that LIFO Reserve is not a costing method but an account used to reconcile differences between LIFO and other methods. Therefore, it is not commonly used for costing inventory under both systems.
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