Multiple Choice
When calculating the per-person cost of breakfast in a hotel, which of the following costs should management include in the Cost of Goods Sold (COGS) under a perpetual inventory system?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
Multiple Choice
Which of the following statements is true with respect to the cost of goods sold (COGS) equation under the perpetual and periodic inventory systems?
A
The COGS equation is the same under both systems and is updated only once a year.
B
Under the periodic system, COGS is updated continuously with each sale.
C
Under the periodic system, COGS is calculated at the end of the period as: \( \text{COGS} = \text{Beginning Inventory} + \text{Purchases} - \text{Ending Inventory} \).
D
Under the perpetual system, COGS is only determined at the end of the accounting period.
Verified step by step guidance1
Understand the difference between the perpetual and periodic inventory systems. The perpetual system updates inventory and COGS continuously with each transaction, while the periodic system calculates COGS at the end of the accounting period.
Recall the formula for calculating COGS under the periodic inventory system: \( \text{COGS} = \text{Beginning Inventory} + \text{Purchases} - \text{Ending Inventory} \). This formula is used to determine the cost of goods sold after the accounting period ends.
Note that under the perpetual inventory system, COGS is updated in real-time as sales occur. This system uses technology, such as barcode scanners, to track inventory and sales continuously.
Identify the incorrect statements in the problem. For example, the claim that COGS is updated continuously under the periodic system is false, as this system only calculates COGS at the end of the period.
Conclude that the correct statement is: 'Under the periodic system, COGS is calculated at the end of the period as: \( \text{COGS} = \text{Beginning Inventory} + \text{Purchases} - \text{Ending Inventory} \).' This aligns with the periodic system's methodology.
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