Multiple Choice
Which of the following statements about inventory costs is true under the perpetual and periodic inventory systems?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
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Which of the following costs is NOT included in the merchandise inventory account under both perpetual and periodic inventory systems?
A
Purchase returns
B
Sales commissions
C
Freight-in costs
D
Purchase discounts
Verified step by step guidance1
Understand the concept of merchandise inventory: Merchandise inventory includes all costs necessary to acquire goods and prepare them for sale. These costs are recorded under the inventory account in both perpetual and periodic inventory systems.
Review the costs listed in the problem: The costs mentioned are purchase returns, sales commissions, freight-in costs, and purchase discounts. Determine which of these costs are directly related to acquiring and preparing inventory for sale.
Analyze each cost: Purchase returns and purchase discounts reduce the cost of inventory, while freight-in costs are added to the inventory cost as they are necessary to bring the goods to the location of sale. Sales commissions, however, are not related to acquiring inventory but are considered a selling expense.
Clarify the distinction: Selling expenses, such as sales commissions, are recorded separately from inventory costs because they are incurred after the inventory is ready for sale and are related to the selling process rather than the acquisition of goods.
Conclude: Sales commissions are not included in the merchandise inventory account under either perpetual or periodic inventory systems because they are classified as selling expenses, not inventory costs.
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