Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

4. Merchandising Operations

Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory

Financial Accounting

4. Merchandising Operations

Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory

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Multiple Choice

In a perpetual inventory system, overhead may be applied based on which of the following methods?

A predetermined rate using direct labor hours

The ending inventory balance

The total number of units sold during the period

The amount of cash received from customers

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Verified step by step guidance

Understand the concept of overhead application: Overhead refers to indirect costs incurred during production, such as utilities, rent, and depreciation. In accounting, these costs are allocated to products or services using a systematic method.

Recognize the role of a predetermined rate: A predetermined overhead rate is calculated before the accounting period begins. It is based on estimated overhead costs and an allocation base, such as direct labor hours, machine hours, or direct labor costs.

Identify the allocation base: In this problem, the allocation base mentioned is direct labor hours. This means overhead is applied proportionally to the number of direct labor hours worked during production.

Eliminate incorrect options: The ending inventory balance, total number of units sold, and cash received from customers are not standard allocation bases for overhead application. These are unrelated to the systematic allocation of indirect costs.

Conclude that the correct method is using a predetermined rate based on direct labor hours, as it aligns with standard accounting practices for overhead allocation in a perpetual inventory system.