Ch.5 Inventories

Question 1

Merchandise Inventory Priceing Requiments

Answer 1

costing = costs incurred to bring inventory to present location + import duties - vendor rebates
Storage/shipping costs not included

Question 2

Manufacturing Inventory

Answer 2

Costs added to inventory = Raw Material + Direct Labour + Manufacturing Overhead (MOH)

Question 3

Manufacturing Overhead (MOH)

Answer 3

MOH = FOH (fixed) + VOH (variable)
the manufacturing facilities, such as heat, electricity, depreciation of the facility, insurance, and indirect factory labor
Allocated using Predetermined OH rate (POHR)

Question 4

Absorption Costing

Answer 4

Both IFRS and ASPE require the use of absorption costing to allocate overhead costs to inventory.
overhead costs are “absorbed” by the inventory and included in its cost

Question 5

Under allocation of MOH

Answer 5

MOH estimated < MOH actual 
Fix: 
Dr COGS or inventory (if unsold)
   Cr MOH
Whatever was sold was undervalued at the sold price cuz not enough cost was added at the beg of the yr

Question 6

Over allocation of MOH

Answer 6

MOH estimated > MOH actual
Dr MOH
Cr COGS or inventory (if unsold)
Whatever was sold was overvalued at the sold price cuz too much cost was added at the beg of the yr

Question 7

Cash flow methods

Answer 7

1. FIFO
2. Weighted Avg = [(Beginning inventory cost + Cost of purchases to date) / (Quantity of inventory in beginning inventory + Quantity of purchases to date)]

Question 8

Lower Cost or NRV

Answer 8

Inventory on BS is carried on a lower cost or NRV basis
NRV=value that the company could realize through an ordinary sale of the inventory =Proceeds- Selling costs
Write-down = original cost- NRV or lower cost
Dr COGS
Cr Inventory

Question 9

ASPE VS IFRS

Answer 9

IFRS IAS 23- Borrowing Costs: must capitalize borrowing costs
ASPE- either capitalize or expense borrowing costs

Question 10

PRACTICE

Answer 10

CALC end of inventory value

• RM doesn’t change
• wages don’t change
• OH changes
• cost does not go up = if production is less than expected cost is the same