Multiple Choice
Which of the following conditions would cause the break-even point to decrease in a company using either the perpetual or periodic inventory system?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
Multiple Choice
Which of the following methods results in the Cost of Goods Sold (COGS) being updated continuously as each sale occurs?
A
Periodic inventory system
B
Specific identification method
C
Perpetual inventory system
D
Weighted average method (periodic)
Verified step by step guidance1
Understand the concept of inventory systems: Inventory systems are methods used by businesses to track and manage inventory levels. The two main types are the periodic inventory system and the perpetual inventory system.
Learn about the periodic inventory system: In this system, inventory and Cost of Goods Sold (COGS) are updated at the end of an accounting period, not continuously. Sales transactions do not immediately affect inventory records.
Understand the perpetual inventory system: This system updates inventory and COGS continuously as each sale or purchase occurs. It uses technology like barcodes and point-of-sale systems to track inventory in real-time.
Compare the specific identification method: This method tracks individual items of inventory and assigns specific costs to them. While it can be used in a perpetual system, it does not inherently update COGS continuously unless paired with a perpetual inventory system.
Clarify weighted average method (periodic): This method calculates an average cost for inventory items and updates COGS periodically, not continuously. It is typically used in a periodic inventory system.
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