Multiple Choice
Which of the following best describes how inventory of services differs from inventory of products in accounting?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
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Which of the following is considered distribution inventory in the context of Cost of Goods Sold under perpetual and periodic inventory systems?
A
Goods held at a warehouse awaiting shipment to customers
B
Finished goods still in the production facility
C
Work-in-process inventory on the factory floor
D
Raw materials stored for production
Verified step by step guidance1
Understand the concept of distribution inventory: Distribution inventory refers to goods that are ready for sale and are held at a location awaiting shipment to customers. It is distinct from raw materials, work-in-process, and finished goods still in production.
Review the perpetual and periodic inventory systems: Both systems track inventory, but the perpetual system updates inventory records continuously, while the periodic system updates them at specific intervals. Distribution inventory is relevant in both systems as it represents goods ready for sale.
Analyze the options provided: Goods held at a warehouse awaiting shipment to customers fit the definition of distribution inventory, as they are ready for sale and not part of production processes.
Eliminate incorrect options: Finished goods still in the production facility, work-in-process inventory, and raw materials stored for production are part of the production process and do not qualify as distribution inventory.
Conclude that the correct answer is 'Goods held at a warehouse awaiting shipment to customers,' as this aligns with the definition of distribution inventory in the context of Cost of Goods Sold.
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