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Exam 5: Inventories and Cost of Sales

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Question 81

True/False

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The lower of cost or market rule for inventory valuation must be applied to each individual unit separately and not to major categories of inventory or to the entire inventory.

A) True
B) False

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Question 82

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The FIFO inventory method assumes that costs for the most recently purchased items are the first to be charged to the cost of goods sold.

A) True
B) False

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Question 83

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A company has inventory of 15 units at a cost of $12 each on August 1. On August 5, they purchased 10 units at $13 per unit. On August 12 they purchased 20 units at $14 per unit. On August 15, they sold 30 units. Using the FIFO periodic inventory method, what is the value of the inventory at August 15 after the sale?

In applying the lower of cost or market method to inventory valuation, market is defined as the current selling price.

Not many companies take a physical count of inventory each year as they rely primarily on inventory records alone to determine the inventory value.

Given the following items and costs as of the balance sheet date, determine the value of Light Company's merchandise inventory. $2,000 goods sold by Light to another company. The goods are in transit and shipping terms are FOB shipping point. $3,000 goods sold by another company to Light. The goods are in transit and shipping terms are FOB shipping point. $4,000 owned by Light but in the possession of another company the consignee. Damaged goods owned by Light which originally cost $5,000, but which now have an $800 net realizable value.

Incidental costs most commonly added to the costs of inventory include import duties, freight, storage and insurance.

A company had inventory of 5 units at a cost of $20 each on November 1. On November 2, they purchased 10 units at $22 each. On November 6 they purchased 6 units at $25 each. On November 8, they sold 18 units for $54 each. Using the LIFO perpetual inventory method, what was the cost of the 18 units sold?

During January, a company that uses a perpetual inventory system had beginning inventory, purchases and sales as follows. What was the weighted average cost of the company's January 31 inventory?

An overstatement of ending inventory will cause

Given the following information, determine the cost of goods sold at December 31 using the Weighted Average periodic inventory method. December 2: 5 units were purchased at $7 per unit. December 9: 10 units were purchased at $9.40 per unit. December 11: 12 units were sold at $35 per unit December 15: 20 units were purchased at $10.15 per unit December 22: 18 units were sold at $35 per unit

Given the following information, determine the cost of ending inventory at November 30 using the LIFO perpetual inventory method. November 3: 15 units were purchased at $8 per unit. November 11: 18 units were purchased at $9.50 per unit. November 15: 15 units were sold at $45 per unit November 18: 30 units were purchased at $10.75 per unit November 30: 20 units were sold at $55 per unit

Days' sales in inventory is calculated as:

Given the following information, determine the cost of ending inventory at November 30 using the Weighted Average perpetual inventory method. November 3: 15 units were purchased at $8 per unit. November 11: 18 units were purchased at $9.50 per unit. November 15: 15 units were sold at $45 per unit November 18: 30 units were purchased at $10.75 per unit November 30: 20 units were sold at $55 per unit

The choice of an inventory valuation method can have a major impact on gross profit and cost of sales.

The ______________________ method of inventory valuation better matches current costs with revenues in computing gross profit.

A company has inventory of 10 units at a cost of $10 each on June 1. On June 3, they purchased 20 units at $12 each. 12 units are sold on June 5. Using the FIFO perpetual inventory method, what is the cost of the 12 units that were sold?

There is no simple rule for inventory turnover, except that a high ratio is preferable provided inventory is adequate to meet demand.

LIFO assumes that inventory costs flow in the order they were incurred.

Merchandise inventory includes: