Inventory Flashcards
What does inventory for a typical business entity include?
Includes property held for resale, property in the process of production, and property consumed in the process of production.
Is fixed overhead one of the four manufacturing input costs?
Yes, this is one of the input costs.
Who is the owner of consigned goods?
The consignor (firm that shipped the inventory to consignee).
How is the ownership of goods shipped Free On Board (FOB) destination determined?
The seller owns the goods until they reach the destination.
What merchandise is included in ending inventory?
All owned inventory, regardless of location.
What inventory costs are required to be capitalized?
All costs necessary to bring the item of inventory to salable condition.
What elements affect fixed overhead rates?
Subject to estimation errors and affected by the choice of denominator measure and the budgeting horizon reflected in the denominator.
Finished Goods Manufactured
+ beginning inventory + finished goods manufactured - ending inventory = cost of goods sold
A disadvantage of the periodic inventory system is?
The cost of goods sold amount used for financial reporting purposes includes both the cost of inventory sold and inventory shortages.
In a period of rising prices, a change in inventory valuation from FIFO to LIFO would result in a change on ending inventory and net income as?
Ending inventory would decrease because under LIFO, the latest items purchased are considered sold, leaving the earliest items purchased in inventory. The same is true for net income because now, under LIFO, COGS is increased relative to FIFO because the cost of the latest and most costly items are considered sold first.
List the Dollar Valued (DV) LIFO conversion index formula.
Ending inventory in current year dollars / ending inventory in base year dollars
Define “base year dollars”
Price level for the pool at the beginning of the year Dollar Valued (DV) LIFO adopted.
List the methods of recording lower of cost or market
Direct method or allowance method
Generally, what is replacement cost?
Market Cost
How is the ceiling value of inventory calculated?
By reducing the sales price by the estimated cost to complete and sell the inventory.
