Chapter 6: Reporting and Analyzing Inventory

Question 1

average-cost method

Answer 1

an inventory costing method that uses the weighted-average unit cost to allocate the cost of goods available for sale to ending inventory and cost of goods sold

Question 2

consigned goods

Answer 2

goods held for sale by one party although ownsership of the goods is retained by another party

Question 3

current replacement cost

Answer 3

the cost of purchasing the same goods at the present time from the usual suppliers in the usual quantities

Question 4

days in inventory

Answer 4

measure of the average number of days inventory is held; calculated as 365/inventory turnover

Question 5

finished goods inventory

Answer 5

manufactured items that are completed and ready for sale

Question 6

first-in, first out (FIFO) method

Answer 6

an inventory costing method that assumes that the earliest goods purchased are the first to be sold

Question 7

FOB destination

Answer 7

freight terms indicating that ownership of goods remains with the seller until the goods reach the buyer

Question 8

FOB shipping point

Answer 8

freight terms indicating that ownership of goods passes to the buyer when the public carrier accepts the goods from the seller

Question 9

inventory turnover

Answer 9

a ratio that indicates the liquidity of inventory by measuring the number of times average inventory sold during the period; computed by dividing cost of goods sold by the average inventory during the period

Question 10

Just-in-time (JIT) inventory

Answer 10

inventory system in which companies manufacture or purchase goods just in time for use

Question 11

last-in, first out (LIFO) method

Answer 11

an inventory costing method that assumes that the latest units purchased are the first to be sold

Question 12

LIFO reserve

Answer 12

for a company using LIFO, the difference between inventory reported using LIFO and inventory using FIFO

Question 13

lower-of-cost-or-market (LCM)

Answer 13

a basis where by inventory is stated at a lower of either its cost or its market value as determined by current replacement cost.

Question 14

raw materials

Answer 14

basic goods that will be used in production but have not yet been placed in production

Question 15

specific identification method

Answer 15

an actual physical-flow costing method in which particular items sold and items still in inventory are specifically costed to arrive at cost of goods sold and ending inventory

Question 16

weighted-average unit cost

Answer 16

average cost that is weighted by the number of units purchased at each unit cost

Question 17

work in process

Answer 17

that portion of manufactured inventory that has begun the production process but is not yet complete