Inventory

Question 1

What costs are included in inventoriable costs?

Answer 1

Purchases
Freight
Warehouse Expenditures

Question 2

How are purchases recorded?

Answer 2

Net of discounts

Question 3

What is FOB shipping point?

Answer 3

Inventory shifts from buyer to seller on the loading dock of the seller.

Question 4

What is FOB destination?

Answer 4

Inventory stays in seller’s inventory until it arrives to the buyer.

Question 5

What are some non-inventoriable costs?

Answer 5

Sales commissions
Interest on liabilities to vendors
Shipping expense to customers

Question 6

What is the gross method of inventory discounts?

Answer 6

Records discounts ONLY when used.

Question 7

What is the net method of inventory discounts?

Answer 7

Records discounts whether or not used; unused discounts allocated to financing expense.

Question 8

What is the formula for gross margin?

Answer 8

Sales - COGS

Question 9

What is a periodic inventory accounting system?

Answer 9

Inventory counted at certain times; weighted average cost flow method

Question 10

What is a perpetual inventory accounting system?

Answer 10

Inventory continually counted/updated; moving-average cost flow method.

Question 11

In periods of falling prices under FIFO, what is COGS and ending inventory?

Answer 11

Highest COGS, lowest ending inventory.

Question 12

In periods of rising prices under LIFO, what is COGS and ending inventory?

Answer 12

Highest COGS, lowest ending inventory

Question 13

In periods of falling prices under LIFO, what is COGS and ending inventory?

Answer 13

Lowest COGS, highest ending inventory

Question 14

Who is a consignor and what inventory is included?

Answer 14

Person who sends their inventory to be sold by someone else; include consignment items in inventory count; include shipping to consignee

Question 15

Who is a consignee and what inventory is included?

Answer 15

Sells someone else’s inventory in their story and they get a cut of the revenue; don’t include consignment inventory held as part of inventory

Question 16

Which inventory valuation methods use Lower of cost or net realizable value?

Answer 16

FIFO and Average Cost; all other methods besides LIFO and Retail.

Question 17

What is FIFO?

Answer 17

First (oldest) inventory in stock is first inventory recorded for COGS purposes.
Think back to front.

Question 18

What is LIFO?

Answer 18

Last (newest) inventory you have in stock is the first inventory you record for COGS purposes.
Think front to back.

Question 19

What is cost of goods available for sale? (COGAS)

Answer 19

Beginning inventory + purchases

Question 20

What is weighted average cost per unit?

Answer 20

Cost of goods available for sale (COGAS) / total units.

Then, multiply with units sold to find COGS.

Question 21

How do you calculate market floor?

Answer 21

NRV - Profit Margin

Question 22

How do you find market for Lower of cost or market method?

Answer 22

Calculate the market ceiling and market floor. Next arrange the ceiling, inventory replacement cost, and market floor from greatest to least. Take the middle number and compare it to cost and take the lower of those 2 numbers.

Question 23

How do you calculate net realizable value?

Answer 23

Selling Price - selling costs

Question 24

How do you find lower of cost or NRV?

Answer 24

Calculate the NRV (selling price - selling costs). Next, compare that amount to cost and take the lower of those two numbers.