Inventory

Question 1

what is included in ending inventory?

Answer 1

any merch owned by entity

costs: freight, insurance in transit, taxes, packaging

Question 2

Goods on consignment

Answer 2

goods are still owned by seller, in consignor’s inv not consignee

Question 3

Items in the process of production

Answer 3

finished goods, work in process and raw materials

Question 4

Items consumed in production

Answer 4

materials, labor and overhead

Question 5

What’s included in cost of inventory

Answer 5

purch returns, freight-in, sales tax on inv purch, packaging costs, insurance on transit

Question 6

Manufacturing input Costs

Answer 6

Direct material, direct labor, fixed overhead, variable overhead

Question 7

Cost flow assumption

Answer 7

the assignment of value to inventory as it flows from the BS to the IS, goods does NOT have to = physical flow of goods

Question 8

Inventory Qualities

Answer 8

periodically and perpetual system

Question 9

Periodic System

Answer 9

periodic physical count

Question 10

Cost flow assumptions

Answer 10

specific identification, weighted avg, FIFO, LIFO –> flow of cost to COGS

Question 11

Specific Identification

Answer 11

used mostly for large distinguishable products

Question 12

Weighted Avg

Answer 12

1. weighted avg cost per unit = COGS avail for sale / # of units avail for sale
2. weighted avg cost per unit X #of units in ending inv = ending inv

Question 13

FIFO

Answer 13

First in first out, lowest COGS, highest NI, highest ending inv

Question 14

LIFO

Answer 14

Last in First out, highest COGS, lowest NI, lowest ending inv

Question 15

Formula for Calc COGS (for both perpetual and periodic method)

Answer 15

Beg Inv
\+Net Purch
= Goods avail for sale
- ending inv 
= COGS

Question 16

Formula for Net Purchases

Answer 16

Gross purchases
\+ transportation (freight in)
- purch returns and allowances
- purch discounts 
= Net Purch

Question 17

Perpetual System

Answer 17

records every purch and sale as it occurs, purch are recorded directly to inv

Question 18

Moving Avg (Cost Flow Assumption)

Answer 18

Implies perpetual system, new weighted avg is calc after each purch

Question 19

Dollar Value LIFO

Answer 19

estimates price level changes for specific inventories, allows application of LIFO using pools of inventory rather than keeping track of purch and sales

Question 20

Conversion Index (Dollar Value LIFO)

Answer 20

= ending inv in current yr dollars / ending inv in base yr dollars

Question 21

Advantages of DV LIFO over LIFO

Answer 21

1. reduces the effect of liquidation problem (turns ending inv from FIFO to LIFO reducing impact)
2. Allows comps to use FIFO
3. Reduces clerical costs

Question 22

Gross Margin (Gross Profit) Inventory Method

Answer 22

estimates COGS based on historical gross profit rates, only used if it isn’t possible to determine ending inv because of fire or other loss. US GAAP does not allow for annual reporting but okay for interim

Question 23

Relative Sales Method

Answer 23

method used to allocate initial cost in a basket purch

Question 24

Gross Margin (Margin on Sales) formula

Answer 24

(sales - COGS) / sales

Question 25

Margin on Cost

Answer 25

(sales - COGS) / COGS

Question 26

Market Value Cost

Answer 26

replacement cost subject to a range of a ceiling and a floor

Question 27

Ceiling Value

Answer 27

= Net Realizable Value

Question 28

Net Realizable Value

Answer 28

estimated selling price of inv less the predicted cost of completion or disposal including transportation

Question 29

Floor Value

Answer 29

= NRV - normal profit margin

Question 30

FIFO and Weighted Avg use what subsequent measurement?

Answer 30

Lower of (original) cost or Net Realizable Value, if cost is less than NRV no write down

Question 31

LIFO and Retail use what subsequent measurement?

Answer 31

Lower of (original) cost or Market Value

Question 32

Inventory Equation

Answer 32

Beg Inv
\+ Purchases
= Goods avail
- Ending inv
= COGS
NI
Retained Earnings

Question 33

Differences between US GAAP and IFRS

Answer 33

IFRS allows only LC-NRV, required to apply the same cost flow to similar inv, reversal up to orig cost on write down, LIFO prohibited