When a Perpetual Inventory System Is Used

question 36

Multiple Choice

When a perpetual inventory system is used,

• A)a physical inventory count must be taken to determine cost of goods sold.
• B)inventory shrinkage is difficult to determine.
• C)it eliminates the need for frequent inventory counts.
• D)the timeliness of data is sacrificed for lower costs of operation.

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Definitions:

Fixed Expenses

Costs that do not fluctuate with changes in production level or sales volume, such as leases and insurance premiums.

Contribution Margin

The amount by which the sale of a product exceeds its variable costs, contributing towards covering fixed costs and generating profit.

Return On Investment (ROI)

A financial metric used to evaluate the efficiency or profitability of an investment, calculated by dividing the benefit (return) of an investment by the cost of the investment.

Net Operating Income

The total profit of a business after operating expenses are deducted but before taxes and interest are calculated.