Set 1 - FR - Chapter 5 - Inventories

Question 1

What is included in inventory cost?

Answer 1

Any costs incurred to bring the goods from current location to its present location. This includes:

• cost of purchase
• shipping costs to receive the merchandise
• import duties and any other unrecoverable taxes

Question 2

What are three costs included in merchandise inventory?

Answer 2

raw material
direct labour
MOH

Question 3

What method of costing is required for ASPE and IFRS in regards to MOH?

Answer 3

Absorbtion

Question 4

MOH is allocated based upon cost drivers and expected output. Where are any differences allocated?

Answer 4

COGS if all items are sold during period. Inventory for any items unsold. The offset entry is to MOH o/h account

Question 5

What are the two cost flow choices? Exclude specific identification.

Answer 5

FIFO and Weighted Average

Question 6

Formula for WAC method

Answer 6

Beginning inv cost + cost of purchases to date / Quantity of inv in beg + quantity of purchases to date

Question 7

How is inventory valued?

Answer 7

Lower of cost and NRV

Question 8

Define NRV

Answer 8

Estimated selling price in ordinary course of business less estimated costs of completion and estimated costs necessary to make the sale

Question 9

What are the differences between IFRS and ASPE (hint capitalization of borrowing costs)

Answer 9

IFRS - requires cap of borrowing costs

ASPE - allows a choice to either cap or expense

Question 10

How are fixed costs allocated to inventory? Is is the same when production is higher or lower than forecast?

Answer 10

Allocated based upon normal operating capacity. If less units produced, no adjustment to MOH. If more, adjust MOH to reflect this- MOH lowered to actual costs. See practice problem in Ebook.