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Identify the option which is correct regarding the primary purpose of inventory
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Answer to Problem 1STQ
b. Offset against revenue an appropriate cost of goods sold.
Explanation of Solution
Cost flow assumptions can be referred to as the method which determines the flow of costs when an inventory is sold. Instead of keeping a track record for cost of each product sold, a company adopts these methods, and identifies which units were sold. Then, this calculated cost of goods sold is deducted from the revenue to ascertain the operating revenue of business.
Cash flow assumptions differ from specific identification method because the actual physical movement of goods may be unrelated to the flow of costs.
Option “a, c, and d” are not correct answer as per above explanation, only option “b” is correct answer as per above explanation. Hence, the correct answer is option b.
Therefore, the correct option is (b), offset against revenue an appropriate cost of goods sold.
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Chapter 8 Solutions
Financial & Managerial Accounting
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