SS E: Merchandizing Operations and Inventory

Question 1

Inventory formula

Answer 1

Inventory = units of inventory on hand * cost per unit

Question 2

COGS formula

Answer 2

COGS = units of inventory sold * cost per unit

Question 3

Cost of Inventory formula

Answer 3

Cost of inventory = purchase price of inventory + freight in - purchase returns - purchase allowance - purchase discounts

Question 4

Net Sales formula

Answer 4

Net Sales = sales revenue - sales returns - sales discount

Question 5

Net Realizable Value formula

Answer 5

NRV = Selling price - (cost of completion + cost of sales)

Question 6

The lower of cost or NRV model

Answer 6

Compare cost of inventory and NRV to determine which one is greater. If cost is higher then you must write-off inventory and record expense along with reducing inventory on balance sheet.

Question 7

Gross Profit/Margin Percent formula

Answer 7

Gross Margin = Gross Profit / Sales

Question 8

Inventory Turnover formula

Answer 8

Inventory Turnover = COGS / Average Inventory

Question 9

Average Inventory formula

Answer 9

(Beginning Inventory + Ending Inventory) / 2

Question 10

Inventory Resident Period formula

Answer 10

Residen Period = 365 / Inventory Turnover

Question 11

Ending Inventory formula

Answer 11

Ending Inventory = Beginning Inventory + Purchases - COGS