Multiple Choice
Which inventory system provides a continuous record of inventory and cost of goods sold, updating these accounts after each purchase or sale?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
Multiple Choice
Which of the following costs can generally be traced directly to units of product under both perpetual and periodic inventory systems?
A
Direct materials cost
B
Factory rent expense
C
Administrative salaries
D
Depreciation on office equipment
Verified step by step guidance1
Understand the concept of direct costs: Direct costs are expenses that can be directly traced to the production of specific units of product. These costs are typically variable and change with the level of production.
Identify the nature of each cost provided in the problem: Direct materials cost is a direct cost because it is directly tied to the production of goods. Factory rent expense, administrative salaries, and depreciation on office equipment are indirect costs because they cannot be directly traced to specific units of product.
Recognize the difference between perpetual and periodic inventory systems: Both systems track inventory, but the classification of direct costs remains the same under both systems. Direct materials cost is always traceable to units of product regardless of the inventory system used.
Exclude indirect costs: Factory rent expense, administrative salaries, and depreciation on office equipment are considered overhead or administrative costs and are not directly traceable to individual units of product.
Conclude that direct materials cost is the correct answer: Direct materials cost is the only cost listed that can be traced directly to units of product under both perpetual and periodic inventory systems.
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