Multiple Choice
Which of the following statements about manufacturing overhead costs is NOT correct?
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4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
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Which of the following is a reason for keeping a supply of inventory?
A
To reduce storage costs to zero
B
To increase the cost of goods sold
C
To meet unexpected increases in customer demand
D
To avoid recording inventory transactions
Verified step by step guidance1
Understand the purpose of maintaining inventory: Inventory is kept to ensure that a business can meet customer demand without delays, especially during unexpected surges in demand.
Analyze the options provided: Evaluate each option to determine its relevance to the purpose of maintaining inventory.
Option 1: 'To reduce storage costs to zero' - This is incorrect because maintaining inventory inherently involves storage costs, and reducing these costs to zero would mean having no inventory at all.
Option 2: 'To increase the cost of goods sold' - This is incorrect because the cost of goods sold (COGS) is determined by the cost of inventory sold, not by the act of maintaining inventory.
Option 3: 'To meet unexpected increases in customer demand' - This is correct because having inventory ensures that a business can quickly respond to sudden increases in customer demand without losing sales opportunities.
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