Question

Hair World Incorporated is a wholesaler of hair supplies. Hair World uses a perpetual inventory system. The following transactions (summarized) have been selected for analysis. What type of inventory system does Hair World use?

1) Perpetual inventory system
2) Periodic inventory system
3) Just-in-time inventory system
4) First-in, first-out (FIFO) inventory system

Answer 1

Hair World Incorporated uses a perpetual inventory system, which continuously tracks inventory levels and updates inventory accounts in real-time after each transaction.

Step-by-step explanation:

The type of inventory system Hair World Incorporated uses, as mentioned in the question, is the perpetual inventory system. This system continuously tracks inventory levels and cost of goods sold by updating the inventory accounts after each transaction, whether it is a sale or purchase of inventory. Unlike the periodic inventory system, which updates at the end of a period, the perpetual system provides real-time information on inventory. This system differs from just-in-time (JIT) inventory systems that minimize inventory on-hand by ordering only as needed, and inventory valuation methods like First-In, First-Out (FIFO), which is a method to assign costs to inventory that assumes items are sold in the order they were acquired.