Inventory

Question 1

Inventory should be measured at the lower of:

Answer 1

• NRV
• Cost

Question 2

What is NRV

Answer 2

the value that the company could realize through an ordinary sale of the inventory

Proceeds - selling costs

Question 3

Costs included in merchandise inventory

Answer 3

• any costs incurred to bring the inventory to its present location and condition
• Cost of purchase
• shipping costs to receive the merchandise
• import duties and any other unrecoverable taxes

Once in condition that it can be sold, no further costs can be added

Question 4

Costs included in manufacturing inventory

Answer 4

• raw materials
• direct labour
• manufacturing overhead

Question 5

Conversion costs

Answer 5

the amount of direct labour and manufacturing overhead costs that are required to turn raw materials into a product

Question 6

Raw material: costs to include

Answer 6

same as merchandise inventory

Question 7

Direct labour: costs to include

Answer 7

added to the cost of inventory as incurred

Question 8

Overhead costs consist of

Answer 8

• costs to operate the manufacturing facility - heat, electricity, depreciation of the facility, insurance, indirect factory labour

Question 9

How are overhead costs allocated to inventory?

Answer 9

• allocated using a predetermined OH rate
  
  • estimated total OH costs / normal volume of cost driver at normal capacity

when underallocated - DR COGS,

under allocated, CR COGS

If inventory remains at the end of the period, allocate the variance b/w inventory and cogs:
CR COGS (variance \* sold/total)
CR Inventory (variance \*remaining/total)

Question 10

Inventory cost flow assumptions…

Answer 10

• Specific identification
• FIFO - when inv is sold, oldest inv gets moved to COGS
• Weighted avg cost

Question 11

Weighted avg cost flow method

Answer 11

= (Beg inv + purchases)/ (Q beg inv + Q purchases)

weighted avg cost per unit is applied to the units in end inv and cogs