Multiple Choice
In a manufacturing company, which department is typically responsible for the price paid for direct materials when calculating variances in the cost of goods sold?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
Multiple Choice
Which of the following costs should be added to the buyer's inventory account under both the perpetual and periodic inventory systems?
A
Sales commissions paid to sales staff
B
Freight-in costs paid by the buyer
C
Advertising expenses for the product
D
Freight-out costs paid by the seller
Verified step by step guidance1
Understand the concept of inventory costs: Inventory costs include all costs necessary to bring the goods to their intended location and condition for sale. These costs are capitalized as part of the inventory value.
Identify the costs listed in the problem: Sales commissions, freight-in costs, advertising expenses, and freight-out costs.
Analyze each cost: Sales commissions and advertising expenses are considered period costs and are expensed in the income statement, not added to inventory. Freight-out costs are costs incurred by the seller to deliver goods to the buyer and are also expensed, not added to inventory.
Focus on freight-in costs: Freight-in costs are transportation costs paid by the buyer to bring inventory to their location. These costs are directly related to acquiring inventory and are added to the inventory account under both perpetual and periodic inventory systems.
Conclude that freight-in costs are the correct answer: Freight-in costs are capitalized as part of inventory under both inventory systems because they are necessary to prepare the goods for sale.
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