Multiple Choice
In a manufacturing company, the cost of goods manufactured (COGM) is:
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
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As inventory quality increases, its cost usually:A) decreasesB) remains unchangedC) increasesD) fluctuates randomlyWhich is the correct answer?
A
decreases
B
remains unchanged
C
increases
D
fluctuates randomly
Verified step by step guidance1
Understand the relationship between inventory quality and cost: Higher quality inventory typically requires better materials, more skilled labor, or advanced production techniques, which can increase costs.
Consider the economic principle of value addition: As the quality of inventory improves, the value added to the product increases, often leading to higher production costs.
Analyze real-world examples: For instance, premium products like luxury cars or high-end electronics have higher costs due to superior quality materials and craftsmanship.
Eliminate incorrect options: 'Decreases' and 'Fluctuates randomly' are unlikely because higher quality inventory generally does not lead to lower or unpredictable costs. 'Remains unchanged' is also incorrect because quality improvements usually require additional investment.
Conclude that the correct answer is 'increases,' as higher inventory quality typically results in higher costs due to the factors mentioned above.
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