Inventories Flashcards
what are the two characteristics of a merchandising inventory
items are 1. owned by the company
2. items are in a form ready for sale to customers
what is the one classification of merchandisers for their inventory?
merchandise inventory
what are the 3 inventories of a manufacturing company?
- finished goods inventory
- work in process inventory
- raw materials inventory
describe the JIT inventory
companies manufacture or purchase goods only when needed
Who pays when FOB Shipping point
buyer pays for the freight costs
FREIGHT IN
when it’s on the courier na, it is owned by the buyer already
FOB Destination
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
differentiate fob shipping point and destination
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
define consigned goods
holding the goos of other parties and trying to sell the goods for a fee
but without taking ownership of the goods
define cost flow assumption
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
assumed cost flow methods:
FIFO
LIFO
Average cost
COGS formula in a periodic system:
(beginning inventory + purchases) - ending inventory = COGS
define FIFO
first in first out method
assumes that the earliest goods purchased are the FIRST to be sold
fifo
what is the ending inventory prices based on
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
define AC method
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
what is the formula for the weighted-average unit cost?
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
how do you get the total cost for the ending inventory?
(total number of units left ) ( weighted average unit cost)
cogs formula
cost of goods available for sale - ending inventory
what happens to the ending inventory of the previous period
it becomes the beginning inventory of the next period
if beginning inventory is understated, COGS will be
understated
if ending inventory is understated, COGS will be
overstated
describe PERPETUAL LIFO
the cost of the earliest goods on hand (before sale) is CHARGED to COGS
therefore, COGS on september 10 consists of jan-aug purchases
describe perpetual AC method
aka moving average method
the company computes a NEW AVERAGE after each purchase by dividing the COGAS by the uNITS ON HAND
define LIFO method
latest goods purchased are the first to be sold
what are the prices of the ending inventory based on (lifo method)
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
ESTIMATING INVENTORIES
What are the 2 (widely used) methods of estimating inventories?
- gross profit method
2. retail inventory method
ESTIMATING INVENTORIES
What are the 2 (widely used) methods of estimating inventories?
- gross profit method
2. retail inventory method
define the gross profit method
estimates the cost of ending inventory by APPLYING GROSS PROFIT RATE TO NET SALES
Gross profit method
How do you use this method + FORMULA
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
define retail inventory method + formulaj
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
