Ch 6 - Inventory Costing

Question 1

Goods in transit - how does it effect inventory

Answer 1

Goods in transit should be included in inventory of the company that has ownership.

if FOB Shipping point is used, ownership is transferred to buyer when it is shipped.
FOB destination, Ownership transfers when its delivered.

Question 2

What is specific identification and when is it used?

Answer 2

Each item is tracked at its specific unit cost. Used for unique or custom products where no 2 products are the same.

Question 3

What is FIFO

Answer 3

First in, first out cost formula. Assumes earliest (oldest) goods purchased are the first ones to be sold. Doesn’t mean actual item is sold first, just that cost of oldest units is used to determine cost of goods sold.

Question 4

For a perpetual inventory system, what is important to remember about Cost of Goods sold?

Answer 4

It is calculated every time a sale is made.

Question 5

What is weighted average?

Answer 5

Allocation of cost of goods available for sale is based on the weighted average unit cost.

Cost of goods available for sale / total units available for sale = weighted average unit cost.

Question 6

Inventory data for Freezer burn corporation for the year ended Dec 31, 2016, are as follows:

Beg inventory       50 units at $150 each
Mar 31 purchase   50 units at $155
1st quarter sales   60 units
June 30 purchase 55 units at $160 each
2nd quarter sales 70 units
Sept 30 purch.     60 units at 170 each

Compute the perpetual ending inventory balance on Dec 31 using FIFO

Answer 6

50+50-60+55-70+60 = 85 units left.

25 units at $160 = $4000
60 units at $170 = $10,200
Total inventory = $14,200

Question 7

Inventory data for Freezer burn corporation for the year ended Dec 31, 2016, are as follows:

Beg inventory       50 units at $150 each
Mar 31 purchase   50 units at $155
1st quarter sales   60 units
June 30 purchase 55 units at $160 each
2nd quarter sales 70 units
Sept 30 purch      60 units at 170 each

Compute the perpetual ending inventory balance on Dec 31 using Weighted average

Answer 7

Weighted average COGAv for sale/ total units av.
50 x $150 = $7500
50 x $155 = $7,750
= 100 $15,250 = $152.50
Less sales (60)
remainder 40 x 152.50 = $6,100

Purchases 55 x $ 160 = $8,800
= 95 $14,900 (8800+6100) = 156.84

Less sale (70)
remainder 25 x $156.84 = $3,921
purchase 60 x $170 = $10,200

                  85              $14,121     $166.13

Question 8

Cash flow relationships and equation to check work for finding ending inventory

Answer 8

Beg Inv + Cost of goods purchased =
Cost of Goods available for sale - Cost of goods sold
= ending inventory.

Question 9

Correct technique to calculate ending inventory when using the weighted average cost formula?

Answer 9

previous total inventory cost - calculated cost of goods sold. Then update the weighted average cost

Question 10

Jonah Comp uses perpetual inv. Selling price is $9 per unit.
Beg inventory 200 x 4.30 $860
Purchase 500 x 4.50 2,250
Sale (500)
Purchase 400 x 4.75 1,900
Sale (400)
Purchase 300 x 5 1,500
remaining 500 $6,510

Determine cost of ending inventory and cost of goods sold under FIFO

Answer 10

$860 + $2250 + 1900+ 1500 = $6510
Cost of goods available for sale = $6510
- cost of goods sold
      ($860+1350 + 900+950 = $4060)
= $2450 is the final inventory.

Question 11

Jonah Comp uses perpetual inv. Selling price is $9 per unit.
Beg inventory 200 x 4.30 $860
Purchase 500 x 4.50 2,250
Sale (500)
Purchase 400 x 4.75 1,900
Sale (400)
Purchase 300 x 5 1,500
remaining 500 $6,510

Determine cost of ending inventory and cost of goods sold under Weighted average

Answer 11

$860       200 units =         $4.30
\+$2250   500 units 
$3110      700 units   =         $4.44
(2220)     (500units) @4.44
890         200 units             4.45
\+1900      400                    
$2790     600 units  =        $4.65
(1860)      (400U) @ 4.65
$930        200 units =        $4.65
\+1500       300 
$2430       500 =                 $4.86

Cost of goods available for sale = 860+2250+1900+1500 = $6510
-Cost of goods sold (2220 + 1860) = $4080
= ending inventory $2430

Question 12

Willets coffee equip uses periodic inv system. Inventory records show that at july 1, 12 units are on hand at $220 each. transactions as follows:
transaction units cost sales price
10 Sale 3 $510
15 sale 4 510
20 Purchase 5 $230
22 Purchase 6 $240
30 Sale 10 $500

Using the FIFO method, calculate the ending inventory and the cost of goods sold. Prove the cost of goods sold calculations.

Answer 12

Beg inventory (12x$220) $2,640
Purchases:
5 x 230 $1,150
6 x 240 1,440
Total purchases 2590
Goods available for sale: $5,230
Ending inventory:
Units (12 + 11 - 17 = 6)
6 units at $240 (1440)
Cost of goods sold $3,790

Proof of cost of goods sold:
July 1 (12 @ 220) $2640
July 20 (5@ 230) 1150
Total $3790

Question 13

Willets coffee equip uses periodic inv system. Inventory records show that at july 1, 12 units are on hand at $220 each. transactions as follows:
transaction units cost sales price
10 Sale 3 $510
15 sale 4 510
20 Purchase 5 $230
22 Purchase 6 $240
30 Sale 10 $500

Using the weighted average, calculate the value of ending inventory

Answer 13

12 x $220 = $2640
Less sales (3)
remainder 9 x 220 1980
Less sales (4)
remainder 5 x 220 1100
Purchase +5 x 230 1150
remainder 10 2250 (WA = 225)
Purchase +6 x 240 1440
remainder 16 3690 (WA = 230.63)
Less sales (10)

remainder 6 x 230.63 = $1383.78 ending inventory

Question 14

Which of the following should not be included in a company’s physical inventory:
A) Goods held on consignment from another company
B) Goods shipped on consignment to another company
C) Goods in transit that were purchased from a supplier and shipped FOB shipping point
D) Goods in transit that were sold to a customer and shipped FOB Destination

Answer 14

A

Question 15

Peg City Brews uses a perpetual inv.
beg Inv 6000 u @$9 = $54,000
Purchase 18,000 @10 = 180,000
Sale (20,000)
Purchase 16,000 @ 11 = 176,000

What was the weighted average unit cost after the last purchase? A) $9.75 B) 10.75 C) 11 D) 10

Answer 15

B - 10.75

Question 16

in Fran company, ending inventory is overstated by $4000. The effects of this error on the current year's cost of goods sold and profit, respectively, are:
A) Understated, overstated
B) OVerstated, understated
C) Overstated, overstated
D) understated, understated

Answer 16

A

Question 17

Rickety Company purchased $1000 units of inventory at a cost of $15 each. there are 200 units left in ending inventory. The net realizable value of these units is $12 each. The ending inventory under the lower of cost and net realizable value rule is:
A) $2400
B) 3000
C) 600
D) 12,000

Answer 17

A

Question 18

If a company's cost of goods sold is $240,000, beginning inventory is $50,000 and ending inventory is $30,000. What are the inventory turnover and days sales in inventory?
A) 3 times and 122 days
B) 6 times and 61 days
C) 4.8 times and 76 days
D) 8 times and 46 days

Answer 18

B

Question 19

What is realizable value? Net realizable value?

Answer 19

the amount the company could reasonably expect to receive or realize from the asset in the near future.
Net realizable is the same except it includes any additional costs that have to be incurred.

Question 20

What is the Lower of Cost and Net realizable value?

Answer 20

When comparing the cost and the net realizable value, you would choose the lesser of the two.
Cost NRV Lower of Cost and NRV
scarves 60k 55K 55k
belts 45k 52k 45k
105,000 107,000 100,000

Question 21

If the Cost was 105,000 and NRV was 107,000 and Lower of Cost and NRV were to be $100,000 - which would be reported on the balance sheet?

Answer 21

LCNRV - $100,000.

Question 22

If a company were using perpetual inv. and there was a difference of $9000 between Cost and LCNRV, how would you JE this?

Answer 22

Cost of Goods sold 9000
merchandise inv 9000
To record decline in inventory value from original cost