Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

4. Merchandising Operations

Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory

Financial Accounting

4. Merchandising Operations

Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory

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Multiple Choice

In inventory management, which cost is directly dependent on the order quantity when calculating the Cost of Goods Sold under both perpetual and periodic inventory systems?

Purchase cost

Stockout cost

Carrying cost

Ordering cost

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Verified step by step guidance

Understand the concept of ordering cost: Ordering cost refers to the expenses incurred each time an order is placed for inventory. This cost is directly tied to the order quantity because larger or more frequent orders can increase the total ordering cost.

Relate ordering cost to inventory systems: In both perpetual and periodic inventory systems, ordering cost is considered when managing inventory levels and calculating the Cost of Goods Sold (COGS). It is not directly part of the COGS calculation but influences inventory management decisions.

Differentiate ordering cost from other costs: Purchase cost is the cost of acquiring inventory, stockout cost is the cost of running out of inventory, and carrying cost is the cost of holding inventory. Ordering cost is unique because it depends on the frequency and size of orders placed.

Analyze the dependency on order quantity: Ordering cost increases with the number of orders placed, which is influenced by the order quantity. For example, smaller order quantities may lead to more frequent orders, increasing the ordering cost.

Apply this understanding to inventory management: When calculating COGS under perpetual or periodic systems, ordering cost is not directly included in the formula but is a critical factor in determining optimal order quantities and inventory policies to minimize total costs.