Final answer:
A perpetual inventory system using the FIFO method calculates the cost of goods sold based on the costs of the oldest items in inventory. It provides real-time information about inventory levels and cost of goods sold.
Step-by-step explanation:
A perpetual inventory system is a method of tracking inventory where the quantity and value of inventory are continuously updated with each transaction. It provides real-time information about inventory levels and cost of goods sold. On the other hand, First-In, First-Out (FIFO) is a method of inventory valuation where the oldest items in inventory are assumed to be sold first.
In the context of business, a perpetual inventory system using the FIFO method means that the cost of goods sold is calculated based on the costs of the oldest items in inventory. This ensures that the cost of goods sold reflects the actual cost of inventory that was sold. It is commonly used in industries where goods have a limited shelf life or risk becoming obsolete, such as in the food industry or technology industry.