6.2 Inventory Cost Determination Formulas Flashcards

1
Q

What are the methods to determine cost of goods sold

A

1) Specific Identifications
2) FIFO
3) Average cost

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2
Q

Specific Identification

A

when all goods are specific and identifiable, with different costs/items/barcodes

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3
Q

if you have items A (woth 75) B (250) C(910)

and you sell A and B for 2000 each

whats your inventory and whats your cogs

A

Inventory: 910

cogs: 75+250

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4
Q

do you use the sale price or the cost of th good sold amount to reduce the inventory acct when selling goods?

A

always use the cost of the goods sold!!!! because sale price is profit genrating

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5
Q

What is the speciific identification cost formula

A

Cost of goods sold= the goods you sold
Ending inventory= goods not sol

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6
Q

when to use speciifc identification formula

A

Companies use this formula primarily in businesses with a relatively small number of costly items that are easily distinguishable

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7
Q

can u use specific identification in perpetual or periodic?

A

both

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8
Q

FIFO meaning

A

first in-first out

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9
Q

what is the basic assumption of fifo

A

the earilest goods purchased are the first to be sold

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10
Q

how is cogs determined in fifo?

A

use the cost of the earliest goods purchased

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11
Q

how is the cost of ending inventory determined in fifo

A

the costs of the most recently purchased items

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12
Q

does FIFO mean the company HAS to sell the oldest inventory firsT?

A

no!!! since you cant speicifically identify them we assume

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13
Q

Because it is normally good business practice to sell first those units that have been in inventory the longest (the oldest units), using FIFO often corresponds with the actual flow of inventory.

A

Because it is normally good business practice to sell first those units that have been in inventory the longest (the oldest units), using FIFO often corresponds with the actual flow of inventory.

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14
Q

how to read those purchases/ cogs/ balance charts?

A

basically things get used up! the first purchase units needs to be sold first and then the second

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15
Q

how to check costs of goods solvd and ending inventory values

A

COGS+ Ending Inventory=

COGavailable for sale (beginning inventory+purchases)

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16
Q

what is the main check to do in FIFO:

A

Beginning Inventory + Cost of Goods Purchased = Cost of Goods Available for Sale

Cost of Goods Sold + Ending Inventory = Cost of Goods Available for Sale

Beginning Inventory + Cost of Goods Purchased = Cost of Goods Sold + Ending Inventory

17
Q

WHAT IS the average cost formula

A

cog available for sale/ units available for sale= weight avg unit cost

18
Q

why do we need the average cost formula

A

-> because you cant really determine a specific physical flow of inventory when all the goods you are selling are the same/interchangeable

-> when u fill ur car, the old gas + new gas mix and mingle

19
Q

what does avg cost formula do?

A

find the weighted average unit cost!

20
Q

Calculate the weighted average unit cost after each purchase of goods under a perpetual inventory system.

A

Calculate the weighted average unit cost after each purchase of goods under a perpetual inventory system

21
Q

is the average cost a moving average!!

A

yes! you calculate with each new purchase

22
Q

should you use rounded or unrounded values in avg cost calculationS?

A

always unrounded !!!! keep in calculator

23
Q

Although FIFO assumes that the oldest inventory is sold first, this does not necessarily mean that the company actually sells the oldest units first. It just means that the first costs that the company records in cost of goods sold are the costs of the oldest units.

A

!!

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