Multiple Choice
Which inventory costing method results in the most precise assignment of costs to Cost of Goods Sold under both perpetual and periodic inventory systems?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
Multiple Choice
Which of the following best describes a key difference between the perpetual and periodic inventory systems in calculating Cost of Goods Sold (COGS)?
A
The perpetual system does not require any record-keeping for inventory transactions.
B
Both systems require a physical count of inventory after every sale to determine COGS.
C
In the periodic system, inventory records are updated after every purchase, while in the perpetual system, inventory is only updated at the end of the period.
D
In the perpetual system, COGS is updated continuously with each sale, while in the periodic system, COGS is determined at the end of the period.
Verified step by step guidance1
Understand the concept of Cost of Goods Sold (COGS): COGS represents the direct costs attributable to the production of goods sold by a company. It includes the cost of materials and labor directly used to create the product.
Learn the perpetual inventory system: In this system, inventory records are updated continuously in real-time. Every sale or purchase transaction is recorded immediately, and COGS is calculated and updated with each sale.
Learn the periodic inventory system: In this system, inventory records are not updated continuously. Instead, inventory and COGS are determined at the end of the accounting period, typically through a physical count and calculation.
Compare the two systems: The key difference lies in the timing of updates. The perpetual system provides real-time updates to inventory and COGS, while the periodic system calculates COGS only at the end of the period.
Apply this understanding to the problem: The correct answer is that in the perpetual system, COGS is updated continuously with each sale, while in the periodic system, COGS is determined at the end of the period. This highlights the operational difference between the two systems.
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