Multiple Choice
Which of the following companies would be best served by using a plantwide overhead rate to allocate manufacturing overhead costs?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
Multiple Choice
Which of the following is included in the calculation of Cost of Goods Sold (COGS) under a periodic inventory system?
A
Inventory is continuously updated in real time
B
Cost of goods sold is updated after every purchase
C
Purchases made during the period
D
Inventory losses detected immediately after each sale
Verified step by step guidance1
Understand the periodic inventory system: In this system, inventory is not updated in real-time. Instead, inventory levels and Cost of Goods Sold (COGS) are determined at the end of the accounting period.
Recognize the formula for COGS under a periodic inventory system: \( \text{COGS} = \text{Beginning Inventory} + \text{Purchases} - \text{Ending Inventory} \). This formula highlights that purchases made during the period are included in the calculation.
Note that inventory losses are not immediately detected under a periodic inventory system. Losses are typically identified during a physical count at the end of the period and are factored into the ending inventory value.
Understand that purchases made during the period are a key component of the COGS calculation. These purchases represent the cost of acquiring goods intended for resale during the accounting period.
Clarify that inventory is not continuously updated in real-time under a periodic inventory system. Instead, updates occur after a physical count at the end of the period, which contrasts with a perpetual inventory system where updates happen after every transaction.
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