Inventory

Question 1

Weighted Average

Answer 1

average cost of all items on hand and purchased during the period (works w/ perpetual system)

Question 2

Moving Average

Answer 2

average cost of goods on hand must be recalculated any time additional inventory is purchased at a unit cost different from the previously calculated average (perpetual system)

Question 3

Simple Average

Answer 3

average cost is not weighted - accurate if all purchases, productions runs, and beginning inventory quantities are equal

Question 4

Perpetual vs. Periodic

Answer 4

In times of rising prices, perpetual moving-average will result in higher ending inventory, because the cost of items sold throughout the year is the average of the earlier lower prices

Question 5

Lower Cost or Market Applied to Total Inventory vs. Individual Inventory Items

Answer 5

In times of rising prices, application of LCOM to the total inventory will result in a higher ending inventory because market values lower than cost are offset against market values higher than cost.

Question 6

Inventory Turnover

Answer 6

measures number of times inventory was sold and order and investment policies

COGS/Average Inventory

Question 7

Number of day’s supply in average inventory

Answer 7

number of days inventory is held before sale, reflects on efficiency of inventory policies

365/Inventory Turnover

Question 8

Lower Cost or Market

Answer 8

Market = Replacement Cost subject to:

Ceiling: net realizable value (selling price - selling costs and costs to complete)
Floor: net realizable value - normal profit

Question 9

Dollar-Value LIFO

Answer 9

LIFO is applied to pools of inventory, rather than individual items.

$ value LIFO = Inventory at bas-year prices x conversion price index

conversion price index = EI at end of year prices / EI at base-year prices