Multiple Choice
Which of the following costs is NOT considered an inventory holding (or carrying) cost?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
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Which term describes the cost of merchandise that a firm sells during an accounting period?
A
Net Sales
B
Inventory Turnover
C
Cost of Goods Sold
D
Gross Profit
Verified step by step guidance1
Understand the concept of 'Cost of Goods Sold (COGS)': It represents the direct costs attributable to the production of goods sold by a company during an accounting period. This includes the cost of materials and labor directly used to create the goods.
Differentiate between the given terms: 'Net Sales' refers to the revenue generated from sales after deducting returns, allowances, and discounts. 'Inventory Turnover' measures how efficiently inventory is managed and sold. 'Gross Profit' is the difference between Net Sales and COGS.
Recognize that 'Cost of Goods Sold' is the term that directly describes the cost of merchandise sold during the accounting period, as it accounts for the expenses incurred to produce and sell the goods.
Relate COGS to the income statement: It is a key component in calculating Gross Profit, which is determined using the formula: Gross Profit = Net Sales - Cost of Goods Sold.
Apply this understanding to the problem: The correct term describing the cost of merchandise sold during an accounting period is 'Cost of Goods Sold,' as it directly reflects the expenses tied to the goods sold.
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