Chapter 6 Terms

Question 1

Average-Cost Method

Answer 1

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

Question 2

Consistency Concept

Answer 2

Dictates that a company use the same accounting principles and methods from year to year

Question 3

Consigned Goods

Answer 3

Goods held for sale by one party although ownership pf the good is retained by another party

Question 4

Days in Inventory

Answer 4

Measure of the average number of days the inventory is held; calculated as 365 divided by 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

Inventory costing method that assumes that the costs of the earliest goods purchased are the first to be recognized as cost of goods sold

Question 7

FOB Destination

Answer 7

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

Question 8

FOB Shipping Point

Answer 8

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

Question 9

Gross Profit Method

Answer 9

A method for estimating the cost of the ending inventory by applying a gross profit rate to net sales and subtracting estimated cost of goods sold from cost of goods available for sale

Question 10

Inventory Turnover

Answer 10

A ratio that measures the number of times on average the inventory is sold during the period; computed by dividing cost of goods sold by the average inventory during the period

Question 11

Just-in-time (JIT) Inventory

Answer 11

Inventory system in which companies manufacture or purchase goods only when needed for use

Question 12

Last-in, First-out (LIFO) Method

Answer 12

Inventory costing method that assumes the costs of the latest units purchased are the first to be allocated to cost of goods sold

Question 13

Lower-of-cost-or-net Realizable Value (LCNRV)

Answer 13

A basis whereby inventory is stated at the lower of either is cost of its net realizable value

Question 14

Moving-Average Method

Answer 14

Inventory costing method in which a new weighted-average unit cost is computed after each purchase, by dividing the cost of goods available for sale by the units on hand

Question 15

Net Realizable Value

Answer 15

Net amount that a company expects to realize (receive) from the sale of inventory. Specifically, it is the estimated selling price in the normal course of business, less estimated costs to complete and sell

Question 16

Raw Materials

Answer 16

Basic goods that will be used in production but have not yet been place into production

Question 17

Retail Inventory Method

Answer 17

A method for estimating the cost of the ending inventory by applying a cost-to-retail ratio to the ending inventory at retail

Question 18

Specific Identification Method

Answer 18

An actual physical flow costing method in which items still in inventory are specifically tracked and costed to arrive at the total cost of the ending inventory

Question 19

Weighted-Average Unit Cost

Answer 19

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

Question 20

Work In Process

Answer 20

That portion of the manufactured inventory that has been placed into the production process but is not yet complete