Inventory

Question 1

Periodic Inventory - Weighted Average

Answer 1

Cost of Goods Available for Sale divided by # of units available for sale

Question 2

Note about moving average inventory

Answer 2

Just use the total number of units and the total unit costs

Question 3

Perpetual vs Periodic LIFO

Answer 3

• Periodic looks at everything like the sale happened at the end
• Perpetual looks at it ass it happens

Question 4

FIFO in a period of rising prices

Answer 4

• Since the first things going out are the cheapest you are lowering you COGS, and at the end of the year have a greater ending inventory.
• If you switch to LIFO your COGS goes up decreasing Net Income and you end up with a lower ending inventory

Question 5

Dollar Value Conversion Index

Answer 5

Ending inventory in current year dollars divided by Ending inventory in base year dollars

Question 6

Dollar Value Inventory Steps

Answer 6

1. ) Multiply ending inventory by (1 divided by index)
2. ) Find the difference between that number at beginning inventory
3. ) Multiply the difference by the price index
4. ) Add that to beginning inventory

Question 7

Inventory Margins

Answer 7

Sales - Cost = Margin
100 - 80 = 20

Margin on Sales: 20/100 = 20%
Margin on Cost: 20/80 = 25%

Question 8

Note about group liquidation

Answer 8

Use the replacement cost to calculate

Question 9

Note about inventory margins

Answer 9

If margin is 40% then multiply Sales by 60% to get COGS

Question 10

Retail Inventory Method - Cost to Retail Ratio

Answer 10

Goods available at cost divided by goods available at retail (includes markups)

Question 11

Retail Inventory Method - Ending Inventory

Answer 11

Net retail multiplied by Cost to retail ratio

Question 12

Retail Inventory Method - Cost of Goods Sold

Answer 12

• Find net retail
• Multiply by cost to retail ratio
• Subtract that from total cost

Question 13

When is lower of Cost or Net Realizable Value Appropriate

Answer 13

When FIFO or Weighted Average is used

Question 14

When is lower of Cost or Market Appropriate

Answer 14

When LIFO is used

Question 15

IFRS net realizable value or market

Answer 15

IFRS uses lower of cost or net realizable value

Question 16

Perpetual System Journal Entry for purchases

Answer 16

Inventory

—–Cash or A/P

Question 17

Perpetual System Journal Entry when a Sale occurs

Answer 17

Cash or A/R
—–Sales

COGS
—–Inventory

Question 18

Periodic System Journal Entry for purchases

Answer 18

Purchases

—–Cash or A/P

Question 19

Periodic System Journal Entry at Year End

Answer 19

Ending Inventory
COGS(Year-End Plug)
———-Beginning Inventory
———-Purchases

Question 20

Costs included in cost of Inventory

Answer 20

• Direct Materials
• Direct Labor
• Direct & Indirect Overhead
• Freight-In
• Insurance
• Warehousing
• Handling Costs
• Repacking
• Normal Spoilage
• Purchase Discounts Adjustments

Question 21

Excluded from cost of Inventory

Answer 21

• Unallocated fixed overhead
• Freight-out
• Sales commissions
• Abnormal Costs
• Excess Spoilage
• Purchase Discounts lost
• Interest or Financing Cost