Unit 2 Chapter 12: Reporting and Managing inventory

Question 1

Net Sales

Answer 1

Total Sales less Sales returns

Question 2

Cost of goods sold

Answer 2

A heading used in the income statement for all costs incurred to bring inventory into a location and condition ready for sale

Question 2

Adjusted gross profit

Answer 2

Gross profit less inventory loss (or plus inventory gain)

Question 3

Why is the purchase of inventory not classified as an expense?

Answer 3

The purchase of inventory does not involve an outflow of economic benefits because it does not decrease assets overall.

Question 4

Equation for gross profit in income statement

Answer 4

Gross profit = Net sales less Cost of Good Sold

Question 5

Gross profit Margin

Answer 5

A profitability indicator that measures the average mark up by calculating the percentage of Net Saless revenue that is retained as Gross Profit

Question 6

Equation for Gross profit Margin

Answer 6

Gross Profit/Net sales x100

Question 7

Inventory sheet

Answer 7

A listing of the quantity and value of each line of inventory on hand

Question 8

Inventory turnover

Answer 8

An efficiency indicator that measures the average number of days it takes for a business to convert its inventory into sales

Question 9

Eqaution for inventory turnover

Answer 9

(Average inventory x 365)/Cost of goods sold

Question 10

Formula for average inventory

Answer 10

Inventory at start + inventory at end/2

Question 11

2 methods for improving inventory turnover

Answer 11

1. Increasing Sales through increase advertising and decreasing sales prices
2. Decreasing inventory holdings

Question 12

2 Strategies to manage inventory

Answer 12

1. Rotate inventory
2. Ensuring inventory is up to date