Introduction to Inventory

Question 1

What is normally included in Inventory?

Answer 1

For a typical business entity this includes property held for resale, property in the process of production, and property consumed in the process of production

Question 2

What does is included in the inventory of a manufacturing company?

Answer 2

1. ) Finished goods inventory
2. ) WIP
3. ) Raw Materials

Question 3

What type of inventory do Merchandising companies typically hold?

Answer 3

Best described as property held for sale. Usually referred to as merchandise inventory

Question 4

Can land be included in inventory?

Answer 4

Yes, if the firm is a real-estate development company

Question 5

Can partially completed buildings and bridges be included in inventory?

Answer 5

Yes, if the firm is a construction company

Question 6

Is inventory always a current asset?

Answer 6

Yes, always current even if they are noncurrent assets to the buyer

Question 7

Are goods awaiting shipment usually included in inventory?

Answer 7

Not if the customer has paid for them.

Question 8

What does FOB Destination (Free-on-board) when dealing with inventory mean?

Answer 8

Means that title to the goods transfer to the buyer when the goods reach the destination

Question 9

What does FOB Shipping Point (Free-on-board) when dealing with inventory mean?

Answer 9

Means title passes at the shipping point (the selling company’s warehouse)

Question 10

Who owns the merchandise in a consignment arrangement?

Answer 10

the consignor. The merchandise is always included in the consignor’s ending inventory even though it is not on their premises.

Question 11

What does the acquisition cost of inventory include?

Answer 11

All costs incurred in getting the merchandise to the seller’s premises and ready for sale. CAPITALIZE IN INVENTORY ALL COSTS NECESSARY TO BRING THE ITEM OF INVENTORY TO SALABLE CONDITION.

Question 12

What costs are usually capitalized and included as part of inventory?

Answer 12

• Freight and Insurance in transit
• Taxes paid
• material handling cost
• Packaging Costs

Question 13

What elements affect fixed overhead rates?

Answer 13

Subject to estimation errors and affected by the choice of denominator measure and the budgeting horizon reflected in the denominator.

Question 14

What merchandise is included in ending inventory?

Answer 14

All owned inventory, regardless of location.

Question 15

Is fixed overhead one of the four manufacturing input costs?

Answer 15

Yes, this is one of the input costs.

Question 16

What are the 4 manufacturing input costs?

Answer 16

1. ) Fixed overhead rate
2. ) Direct material
3. ) Direct labor
4. ) Variable overhead.

Question 17

Is interest paid Included in Inventory costs?

Answer 17

No. Neither are promotional items such as advertising

Question 18

Are Purchase discounts and returns and allowances capitalized into the cost of Inventory?

Answer 18

Yes, reduce the cost allocated to Inventory

Question 19

If a cosginee pays shipping costs, what account is this placed in until the cosignee pays the cosignor?

Answer 19

A/R

Question 20

If a cosignor pays shipping costs to get the goods to the cosignee, is this included in inventory for the cosignor?

Answer 20

Yes