concepts in chapter 6

Question 1

what are the three inventory cost flow assumptions

Answer 1

FIFO, LIFO, Average Cost (AVCO)

Question 2

what is FIFO

Answer 2

First in, first out

Question 3

what is LIFO

Answer 3

Last in, first out

Question 4

What is AVCO

Answer 4

Average cost

Question 5

Which inventory cost flow assumption is not allowed under IFRS

Answer 5

LIFO

Question 6

which inventory cost flow assumption gives the highest cost of goods sold

Answer 6

LIFO. Implications are lower taxes.

Question 7

in periods of increasing prices

Answer 7

FIFO produces highest net income
LIFO produces lowest net income
Average Cost falls in the middle

Question 8

In periods of decreasing prices

Answer 8

FIFO produces lowest net income
LIFO produces highest net income
Average Cost falls in the middle

Question 9

inventory turnover ratio

Answer 9

cost of goods sold / avg inventory

Question 10

days in inventory (avg age of inventory)

Answer 10

365 / inventory turnover ratio

Question 11

ending inventory under FIFO

Answer 11

Ending inventory under LIFO + LIFO reserve

Question 12

weighted average unit cost

Answer 12

cost of goods available for sale / total units available for sale

Question 13

What is the moving-average method?

Answer 13

The average-cost method in a perpetual inventory system