Chapter 6 Formulas Flashcards
Inventory Turnover Ratio
COGS/ Average Inventory
Days Sales in Inventory Ratio
365/ Inventory Turnover Ratio
Ending Inventory and COGS are reported as______?
Ending Inventory = Current Asset on Balance Sheet @ lower cost and net realizable value
COGS = Expense on income statement
Difference between Merchandiser/ Manufacturer?
Merchandiser = Buy's its inventory Manufacturer = Produces it's inventory
In a period of rising prices____
FIFO produces higher profit
Weighted Average produces lower profit
(lower units will be included in COGS)
In a period of falling prices ____
Weighted Average produces higher profit
FIFO produces lower profit
In a period of stable prices_____
FIFO and Weighted Average will produce the same results
Cost Flow Relationship
Beginning Inventory + Cost of Goods Purchased = Cost of Goods Available for Sale - COGS = Ending Inventory
When is Specific Identification Used?
used for goods that are not ordinarily interchangeable
When is FIFO Used?
assumes a first‐in, first‐out cost flow for sales.
Cost of goods sold consists of the cost of the earliest goods purchased.
Ending inventory is determined by allocating the cost of the most recent purchases to the units on hand.
When is Weighted Average Used?
used for goods that are homogeneous or non‐distinguishable.
Consignee vs Consignor
Consignee = Doesn't Count as Inventory Consignor = Counts as Inventory
