BURNLEY 1e: Chapter 7 Review

Question 1

Consignee

Answer 1

An entity that sells goods on consignment on behalf of consignors, receiving a commission when the goods are sold.

Question 2

Consignment

Answer 2

The selling of goods on behalf of another party, usually for a commission.

Question 3

Consignor

Answer 3

The owner of goods sold on consignment by a consignee.

Question 4

Cost formula

Answer 4

Method of allocating cost of goods available for sale to cost of goods sold and ending inventory.

Question 5

Cost of goods available for sale (COGAS)

Answer 5

The cost of all of the goods that a company had available to sell to its customers during the period, calculated as the cost of the opening inventory plus the cost of purchases.

Question 6

Cost-to-sales ratio

Answer 6

Ratio reflecting the normal markup that a company applies to its products, calculated as the product’s cost price divided by its marked-up selling price.

Question 7

Days to sell inventory ratio

Answer 7

The number of days, on average, that it took a company to sell through its inventory, calculated as 365 days divided by the inventory turnover ratio.

Question 8

Electronic data interchange (EDI)

Answer 8

A link between two companies with computers allowing inventory to be ordered directly over the computer connection.

Question 9

Finished goods

Answer 9

Products completed by a manufacturer and ready for sale to customers.

Question 10

First-in, first-out (FIFO)

Answer 10

The cost flow formula that assigns the cost of the first unit into the inventory to the first unit sold.

Question 11

FOB destination

Answer 11

Shipping term signifying that the seller is responsible for paying shipping and any other costs incurred while the goods are in transit from the seller’s premises to the buyer’s premises.

Question 12

FOB shipping point

Answer 12

Shipping term signifying that the buyer is responsible for paying shipping and any other costs incurred while the goods are in transit from the seller’s premises to the buyer’s premises.

Question 13

Gross margin

Answer 13

Sales revenue minus cost of goods sold. Synonym for gross profit.

Question 14

Gross margin estimation method

Answer 14

A method for estimating the cost of ending inventory by converting the sales amount to cost of goods sold using the gross margin ratio. The calculated cost of goods sold amount is subtracted from the goods available for sale to determine the ending inventory cost.

Question 15

Homogeneous

Answer 15

Characteristic of inventory that is interchangeable (that is, where one unit of inventory cannot be distinguished from another), such as litres of fuel.

Question 16

Inventory

Answer 16

Any item purchased by a company for resale to customers or to be used in the manufacture of a product that is then sold to customers.

Question 17

Inventory shrinkage

Answer 17

The losses of inventory due to spoilage, damage, theft, or waste.

Question 18

Inventory turnover ratio

Answer 18

A ratio that measures how fast inventory is sold and how long it is held before it is sold. It is calculated as cost of goods sold divided by average inventory.

Question 19

Inventory writedown

Answer 19

The reduction of an inventory item’s carrying amount when its estimated net realizable value is less than its cost. A writedown is treated as an expense (part of cost of goods sold) in that period.

Question 20

Just-in-time (JIT)

Answer 20

A delivery strategy where the inventory is delivered as close as possible to the time when the customer will be ready to buy it.

Question 21

Manufacturer

Answer 21

A company that makes products.

Question 22

Merchandiser

Answer 22

A company that purchases goods from manufacturers or suppliers and sells them to customers. Synonym for retailer.

Question 23

Net realizable value (NRV)

Answer 23

The selling price of a unit of inventory less any costs necessary to complete and sell the unit.

Question 24

Overhead

Answer 24

Manufacturing costs other than the costs of raw materials and labour, such as utilities and depreciation of the manufacturing facility.

Question 25

Periodic inventory system

Answer 25

An inventory system in which cost of goods sold is determined by counting ending inventory, assigning costs to these units, and then subtracting the ending inventory value from cost of goods available for sale (that is, the sum of the beginning inventory plus purchases for the period).

Question 26

Perpetual inventory system

Answer 26

An inventory system in which the cost of goods sold is determined at the time a unit is sold and ending inventory is always known, in both units and dollars.

Question 27

Raw materials

Answer 27

All of the items required to manufacture a product.

Question 28

Retailer

Answer 28

Synonym for merchandiser.

Question 29

Specific identification (specific ID)

Answer 29

A cost formula of assigning costs to units of inventory in which the cost of a unit can be specifically identified from company records.

Question 30

Stockout

Answer 30

A situation arising when a company sells all of a specific item of inventory and has no more available (in stock).

Question 31

Weighted-average (W/A)

Answer 31

A cost formula for assigning costs to units of inventory in which each unit is assigned the weighted-average cost of the units available for sale at that point.

Question 32

Work-in-process

Answer 32

A class of inventory used to record the costs of products that have been started but have not been completed at the end of the accounting period.