Question

Which values are known when calculating COGS using perpetual inventory method?

Answer 1

When calculating COGS using the perpetual inventory method, the values known include Beginning Inventory, Purchases, Freight-in, Returns and Allowances, and Ending Inventory.

Step-by-step explanation:

When calculating COGS (Cost of Goods Sold) using the perpetual inventory method, the values known include:

1. Beginning Inventory: The value of inventory at the beginning of the accounting period.
2. Purchases: The cost of inventory purchases made during the accounting period.
3. Freight-in: The cost of shipping and transportation associated with bringing inventory into the business.
4. Returns and Allowances: The value of inventory that has been returned or the allowances given for damaged or defective inventory.
5. Ending Inventory: The value of inventory at the end of the accounting period.

Using these values, the COGS can be calculated using the formula:

COGS = Beginning Inventory + Purchases + Freight-in - Returns and Allowances - Ending Inventory.

For example, if the beginning inventory is $10,000, purchases are $50,000, freight-in is $2,000, returns and allowances are $5,000, and the ending inventory is $8,000, the COGS would be calculated as:

COGS = $10,000 + $50,000 + $2,000 - $5,000 - $8,000 = $49,000.