Inventories

Question 1

what are the two characteristics of a merchandising inventory

Answer 1

items are 1. owned by the company

2. items are in a form ready for sale to customers

Question 2

what is the one classification of merchandisers for their inventory?

Answer 2

merchandise inventory

Question 3

what are the 3 inventories of a manufacturing company?

Answer 3

1. finished goods inventory
2. work in process inventory
3. raw materials inventory

Question 4

describe the JIT inventory

Answer 4

companies manufacture or purchase goods only when needed

Question 5

Who pays when FOB Shipping point

Answer 5

buyer pays for the freight costs
FREIGHT IN

when it’s on the courier na, it is owned by the buyer already

Question 6

FOB Destination

Answer 6

Seller pays for the freight costs
FREIGHT OUT

while it’s still in transit and it has not reached the customer, the seller is still liable and it is still owned by them

Question 7

differentiate fob shipping point and destination

Answer 7

shipping point — ownership of the goods passes to the buyer

destination — ownership of the goods remains with the seller until the goods reach the buyer

Question 8

define consigned goods

Answer 8

holding the goos of other parties and trying to sell the goods for a fee

but without taking ownership of the goods

Question 9

define cost flow assumption

Answer 9

instead of keeping track of the cost of each particular item sold (specific identification method), companies make assumption about which units were sold through cost flow assumption

Question 10

assumed cost flow methods:

Answer 10

FIFO
LIFO
Average cost

Question 11

COGS formula in a periodic system:

Answer 11

(beginning inventory + purchases) - ending inventory = COGS

Question 12

define FIFO

Answer 12

first in first out method

assumes that the earliest goods purchased are the FIRST to be sold

Question 13

fifo

what is the ending inventory prices based on

Answer 13

companies obtain the cost of the ending inventory by taking the unit cost of the MOST RECENT PURCHASE and working backward until all units of inventory have been costed

Question 14

define AC method

Answer 14

allocates the cost of goods available for sale on the basis of the WEIGHTED AVERAGE UNIT COST incurred

assumes that goods are similar in nature

Question 15

what is the formula for the weighted-average unit cost?

Answer 15

Cost of goods available for sale / total units available for sale = weighted-average unit cost

basta divide the TOTAL cost and TOTAL NUMBER of units together

Question 16

how do you get the total cost for the ending inventory?

Answer 16

(total number of units left ) ( weighted average unit cost)

Question 17

cogs formula

Answer 17

cost of goods available for sale - ending inventory

Question 18

what happens to the ending inventory of the previous period

Answer 18

it becomes the beginning inventory of the next period

Question 19

if beginning inventory is understated, COGS will be

Answer 19

understated

Question 20

if ending inventory is understated, COGS will be

Answer 20

overstated

Question 21

describe PERPETUAL LIFO

Answer 21

the cost of the earliest goods on hand (before sale) is CHARGED to COGS

therefore, COGS on september 10 consists of jan-aug purchases

Question 22

describe perpetual AC method

Answer 22

aka moving average method

the company computes a NEW AVERAGE after each purchase by dividing the COGAS by the uNITS ON HAND

Question 23

define LIFO method

Answer 23

latest goods purchased are the first to be sold

Question 24

what are the prices of the ending inventory based on (lifo method)

Answer 24

prices of ending inventory are based from the OLDEST PURCHASES

companies obtain the cost of the ending inventory by taking the UNIT COST OF THE EARLIEST GOODS AVAILABLE FOR SALE and working forward until all units of inventory have been costed

Question 25

ESTIMATING INVENTORIES

What are the 2 (widely used) methods of estimating inventories?

Answer 25

1. gross profit method

2. retail inventory method

Question 26

ESTIMATING INVENTORIES

What are the 2 (widely used) methods of estimating inventories?

Answer 26

1. gross profit method

2. retail inventory method

Question 27

define the gross profit method

Answer 27

estimates the cost of ending inventory by APPLYING GROSS PROFIT RATE TO NET SALES

Question 28

Gross profit method

How do you use this method + FORMULA

Answer 28

identify its net sales, cost of goods available for sale (cogas), and gross profit rate

NET SALES - ESTIMATED GROSS PROFIT = ESTIMATED COGS

COGAS - ESTIMATED COGS = ESTIMATED COST OF ENDING INVENTORY

net sales - gross profit = cogs
cogas - cogs = ending inventory

Question 29

define retail inventory method + formulaj

Answer 29

Show both cosr and retail value

Goods available for sale at retail minus net sales = ending inventory

Goods abailable for sale at cost / goods available for sale at retail = cost to retail ratio

Endgn inventory at retail * cost to retail ratio = estimated cost of ending inventory