Chapter 2

Question 1

When the price of inventory has changed throughout the year, by what 4 methods is the end cost determined?

Answer 1

1. FIFO _{<em>(first in first out)</em>} → this assumes that the first goods purchased are the first to be sold.
2. LIFO _{(last in first out)} → This assumes that the last goods delivered are the first to be sold.
3. Cumulative average weighted cost (AVCO) → the weighted average price for all units in inventory. _{<em><strong>(A new weighted average must be purchased after every purchase)</strong></em>}
4. Period weighted average → Each salue is valued at the same average price

Question 2

Give 3 advantages and 3 disadvantages of using FIFO?

Answer 2

Question 3

Using FIFO calculate…

1. The valuation of sales
2. The valuation of closing inventory

Answer 3

Question 4

Give advantages and disadvantages of LIFO

Answer 4

Question 5

Using LIFO calculate…

1. The valuation of sales
2. The valuation of closing inventory

Answer 5

Question 6

Give 3 advantages and 2 disadvantages of the AVCO method

Answer 6

Question 7

Using AVCO calulate the closing inventory value

Answer 7

The average cost per unit is recalculated after every purchase

Question 8

1. What is the equation to calculate the periodic weighted average?
2. How is the closing inventory value calculated using this?

Answer 8

1. Total cost of opening units & units purchased / Total units opening units & units purchased
2. Closing units x periodic weighted average

Question 9

Are suppervisor costs normally allocated or apportioned.

Answer 9

Normally allocated to 1 department