Multiple Choice
The standard rate per unit that a company expects to pay for variable overhead equals the:
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
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Which of the following statements is true regarding the calculation of Cost of Goods Sold (COGS) under the perpetual and periodic inventory systems?
A
Both perpetual and periodic inventory systems update COGS only at the end of the accounting period.
B
The periodic inventory system provides real-time inventory balances, while the perpetual system does not.
C
COGS is calculated in the same way and at the same time under both perpetual and periodic inventory systems.
D
Under the perpetual inventory system, COGS is updated continuously with each sale, while under the periodic system, COGS is determined at the end of the period.
Verified step by step guidance1
Understand the key difference between perpetual and periodic inventory systems. The perpetual system updates inventory and COGS in real-time with each transaction, while the periodic system updates inventory and calculates COGS only at the end of the accounting period.
In the perpetual inventory system, every sale or purchase transaction is recorded immediately, and the Cost of Goods Sold (COGS) is updated continuously. This provides real-time inventory balances.
In the periodic inventory system, inventory records are not updated with each transaction. Instead, the inventory count is determined through physical stocktaking at the end of the accounting period, and COGS is calculated using the formula: \( \text{COGS} = \text{Beginning Inventory} + \text{Purchases} - \text{Ending Inventory} \).
Analyze the statements provided in the problem. The first statement is incorrect because the perpetual system updates COGS continuously, not only at the end of the accounting period. The second statement is incorrect because the periodic system does not provide real-time inventory balances; the perpetual system does. The third statement is incorrect because COGS is calculated differently under the two systems.
The correct answer is the fourth statement: 'Under the perpetual inventory system, COGS is updated continuously with each sale, while under the periodic system, COGS is determined at the end of the period.' This accurately reflects the operational differences between the two systems.
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