Deck 6: Inventory Costing

Question 1

Goods in transit shipped FOB destination belong to the seller.

Answer 1

True

Question 2

Goods on consignment are owned by the holder of the goods (consignee).

Answer 2

False

Question 3

An error in ending inventory of the current period will have a reverse effect on the profit of the next period.

Answer 3

True

Question 4

Under FIFO, the assignment of cost to merchandise sold is in the same order in which the merchandise was purchased.

Question 5

Taking a physical inventory involves actually counting, weighing, or measuring each kind of inventory on hand

Question 6

The specific identification method does not track the actual physical flow of the goods in a perpetual system

Question 7

In a period of rising prices, FIFO results in a lower profit and lower ending inventory than average

Question 8

The specific identification method is used for high-volume, low-cost items.

Question 9

Inventory is written down to net realizable value if the net realizable value is lower than its cost

Question 10

In a perpetual system, the calculation for weighted average unit cost is Cost of Goods Sold divided by the total units available for sale

Question 11

If the ending inventory is overstated:

A) profit will be understated.
B) profit will be overstated.
C) profit will be correct.
D) gross profit will be understated.

Question 12

If the ending inventory is understated:

A) profit this year will be overstated.
B) profit next year will be understated.
C) the beginning inventory the next year will be understated.
D) the beginning inventory the next year will be overstated.

Question 13

In a period of rising prices,

A) Cost of Goods sold is higher using average, compared with FIFO.
B) Compared with average, FIFO results in lower gross profit.
C) Compared with average, FIFO has lower ending inventory.
D) Compared with FIFO, average has higher owner's equity.

Question 14

Which of the following statements is not true?

A) Specific identification exactly matches costs and revenues.
B) Average tends to smooth out price changes.
C) FIFO assigns an amount to inventory that is the lower of cost or net realizable value.
D) FIFO assigns the oldest costs incurred to cost of goods sold.

Question 15

In the notes to the financial statements, the following information should not be included:

A) the major inventory classifications
B) the cost determination method (FIFO, specific identification , or average)
C) the fact that inventory is valued at the lower of cost or net realizable value
D) the amount inventory is written up above its original cost

Question 16

Acme has the following information about its inventory.

Using a perpetual inventory system, calculate the costs to be assigned to the ending inventory and to goods sold under:
a. Average
b. FIFO.

Question 17

Paddy Company, which uses a perpetual inventory system, miscounted its ending inventory in Year 1, causing it to be understated. The error was not detected. Using the symbols U, O, and NE to represent understated, overstated, and no effect, indicate the impact of the error on each of the following items.

Question 18

Given the following information for Delta Company, calculate the Inventory turnover ratio:

Question 19

A company just starting business made the following four inventory purchases in August:

On August 24, there were a total of 900 units sold. Using the FIFO inventory cost formula for a periodic inventory system, what is the amount allocated to cost of goods sold for August?

Question 20

There are three inventory cost determination methods. Name them.

Question 21

What is the formula to determine weighted average unit cost?