Exam 6: Inventories

Consider the following inventory information for last year: The company uses a periodic inventory system. The year-end inventory count indicated 3,700 units in inventory. Required: a. Calculate the weighted-average cost per unit for the year. b. Calculate the ending inventory value and the cost of goods sold for the year.

Assume that ending inventory in fiscal 2012 is overstated by $1,000.What impact will this have on fiscal 2013 financial reporting?

Outdoor Devices Inc. manufactures sport hunting equipment. The company's operations had the following results for 2012. Actual production volume approximated normal levels. F = favourable variance, meaning actual costs were below standard; U = unfavourable variance, meaning actual costs exceeded standard. Assume all variances are considered to be material. Required: a. Determine the amount that Outdoor should include in the cost of inventories produced in the year. b. If actual production volume were higher than normal, what would be the effect on the cost of inventories on a per unit basis? What if actual production volume were lower than normal?

Assume that ending inventory in fiscal 2012 is overstated by $1,000.What impact will this have on fiscal 2013 financial reporting?

Which statement is correct about absorption costing?

What costs are not included in the cost of manufactured inventories?

Under which cost flow assumption is it the easiest for management to manipulate income?

In early 2013, Darwin's Pet Shop discovered that some of its inventory of puppies were not what the supplier purported them to be. 550 puppies that were supposed to be purebred (and therefore expensive)were in fact sired by parents with unknown history. As at the fiscal year ended December 31, 2012, 300 of these puppies had been sold while 250 remained in inventory. Purebred puppies cost $140 each and they would retail for $415. Non-purebreds have replacement cost of $30 each, and the estimated sale price is $100 each. Darwin is pursuing the supplier to obtain a refund for the cost difference. However, whether there will be compensation is uncertain. Required: a. Record the journal entry for the write-down of puppy inventory on December 31, 2012. Note any assumptions necessary. b. Suppose the error (non-purebreds treated as purebreds)had not been discovered. Indicate the effect of this error on the following accounts (i.e., were they over- or understated, and by how much?): i. Inventory, December 31, 2012; ii. Cost of goods sold, year 2012; and iii. Cost of goods sold, year 2013. Note: The owners of Darwin's Pet Shop do not intend to disclose the puppy inventory error to the buyers of the 300 puppies, nor do they intend to compensate them. This is clearly an ethical issue, but it is not a factor in this question.

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2012, but the inventory was excluded in error during the ending inventory count. What impact will this not have on fiscal 2013 financial reporting?

What inventory costing methods are permissible under GAAP? Explain the impact of these alternative methods on the income statement and the balance sheet.

For each of the following independent scenarios, indicate the effect of the error (if any)on: i. 2012 net income; ii. 2013 net income; and iii. 2013 closing retained earnings. The company uses the periodic system of inventory and its fiscal year-end is December 31. Ignore income tax effects. Consider each of the following independent scenarios: a. Your analysis of inventory indicates that inventory at the end of 2012 was overstated by $27,000 due to an inventory count error. Inventory at the end of 2013 was correctly stated. b. Invoices in the amount of $107,000 for inventory received in December 2012 were not entered in the books in 2012. They were recorded as purchases in January 2013 when they were paid. The goods were counted in the 2012 inventory count and included in ending inventory on the 2012 financial statements. c. Goods received on consignment valued at $89,000 were included in the physical count of goods at the end of 2013 and included in ending inventory on the 2013 financial statements.

Why is a cost flow assumption used?

Which method cannot be used in Canada to allocate inventory costs between the income statement and the balance sheet?

Which statement is correct about the retail inventory method?

Use the chart provided below to determine the impact if a company forgets to include $3,500 of inventory that was shipped FOB shipping point on December 15, 2013 but was still in transit at year end. The purchase invoice was received before year end and appropriately included in the purchases and accounts payable.

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2012, but the inventory was excluded in error during the ending inventory count. What impact will this have on fiscal 2013 financial reporting?

Which statement best explains the weighted average cost flow assumption?

A company has fixed production overhead costs totalling $25,000. The normal production level is 2,500 units per year, yielding a standard fixed overhead rate of $10.00 per unit. If the actual production level is 2,000 units, how much would be the amount of fixed overhead per unit and the amount of total fixed overhead included in inventory? Select the letter for the best answer:

A retailer has a standard mark-up of 25% on cost. For the month of June, the company recorded sales of $200,000 and purchases of $170,000. Inventory at the beginning of June was estimated to be $240,000. Required: Using the gross margin method, estimate the cost of goods sold for the month of June and the cost of inventory at the end of June.

Assume that a purchase invoice for $1,000 was appropriately recorded in fiscal 2012, but the inventory was excluded in error during the ending inventory count. What impact will this have on fiscal 2013 financial reporting?