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Flashcards in Inventory Deck (37)
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1
Q

Which costs are inventoriable?

A

Purchases - Net of Discounts, Freight, Warehouse expenditures

2
Q

When does ownership of goods transfer when shipped FOB Shipping Point?

A

FOB Shipping Point puts the inventory into the hands of the buyer from the loading dock

3
Q

When does ownership transfer when goods are sent FOB Destination?

A

FOB Destination keeps the items in the seller’s inventory until it reaches the buyer

4
Q

Which costs are non-inventoriable?

A

Sales Commissions

Interest on liabilities to vendors

Shipping expense to customers

5
Q

When are discounts recorded under the gross method?

A

Under the gross method, discounts are recorded only when used.

6
Q

Under the net method, when are discounts recorded?

A

Under the net method, discounts are recorded whether used or not.

Unused discounts are allocated to financing expense.

7
Q

How is gross margin calculated?

A

Gross Margin : Sales - COGS (BI + P - EI)

8
Q

Describe the periodic inventory system.

A

Inventory is counted at certain times throughout the period

Weighted-average cost flow method is used.

9
Q

Describe the perpetual inventory system.

A

Inventory count continually updated

Uses a moving-average cost flow method

10
Q

In periods of rising prices, under which cost flow system would ending inventory be the same under both periodic and perpetual inventory methods?

A

Under the FIFO system, periodic and perpetual inventory methods will both have the same ending inventory.

11
Q

How is inventory turnover calculated?

A

COGS / Average Inventory

12
Q

How is Average Day’s Sales in inventory calculated?

A

365 / Inventory Turnover

13
Q

Under a consignment system, who holds the consigned goods in inventory?

A

The CONSIGNOR holds the consigned items in their inventory count. The cost includes the shipping to the consignee.

14
Q

Under a consignment system, does the consignee hold consignment inventory in their own inventory?

A

No. Consignment goods are maintained in the inventory of the consignor, not the consignee.

15
Q

What effect does overstatement or understatement of inventory have on ending retained earnings?

A

Misstatement of beginning inventory does NOT have an effect on ending retained earnings.

Misstatement of ENDING inventory does have an effect on retained earnings.

16
Q

How does misstatement of ending inventory effect Ending Retained Earnings?

A

EI Over : COGS Under : ERE Over

EI Under : COGS Over : ERE Under

17
Q

Which costs are included in COGS first under the FIFO (first in first out) system?

A

The first (oldest) inventory you have in stock is the first inventory you record for COGS purposes. If your oldest inventory on the shelf cost you $1 when you bought it, COGS is $1

This is just for inventory pricing. It has nothing to do with physically selling the oldest item on the shelf - It is purely for accounting purposes

18
Q

Which costs are included in COGS under the LIFO (last in first out) system?

A

The last (newest) inventory you have in stock is the first inventory you record for COGS purposes. If your newest inventory on the shelf cost you $1.50 when you bought it, COGS is $1.50

19
Q

How is Weighted Average Cost Per Unit calculated under a weighted average inventory system?

A

COGAS / Total Units : Weighted Average Cost Per Unit

20
Q

How does FIFO’s COGS relate to LIFO’s in a time of changing prices?

A

FIFO’s relationship to COGS will be opposite LIFO’s relationship to COGS in periods of falling/rising prices.

21
Q

How do FIFO and LIFO change in a period of rising prices?

A

FIFO has the Lowest COGS

FIFO is a cat that sees a mouse starts Low and is Rising

If COGS is Low, that means EI is High

22
Q

How do FIFO and LIFO change in a period of falling prices?

A

FIFO has the Highest COGS

Remember: FIFO, that silly cat, got High from Catnip and is Falling off the couch

If COGS is High, that means EI is Low

23
Q

Under a Lower of Cost or Market, how are the benchmarks calculated?

A

Market Ceiling : Net Realizable Value : Selling Price - Selling Costs

Market : Replacement Cost

Market Floor : Net Realizable Value - Normal Profit

24
Q

Weighted Average

A

Total Cost
_______________
Total units

25
Q

Simple average

A

Total unit costs/# of units costs

26
Q

Moving average

A

moves each time inventory is added or subtracted

27
Q

Write down of inventory entry

A

Loss due to market decline

Inventory

28
Q

Purchase Commitments - Journal entry

A

if there is decline and the contract is non cancellable:

Estimated loss on Purchase Commitment
Accrued Loss on Purchase Commitment

Upon receipt of goods:

Inventory
Accrued Loss on PC
Cash

29
Q

Effect of Inventory write off due to obsolescence

on the Cost of Goods Sold account

A

Decreases cost of goods sold

JE: CR to Inventory so it decreases COGS since COGS is a credit entry in the Inventory T account

30
Q

Purchase Discounts Lost

A

is a finance charge if not taken
if net method is used - this account is only recognized if the discount is not taken

Purchase Discount Lost
Cash

31
Q

In inventories, fixed overhead is based on the

A

normal capacity of the production facilities which is the range that may vary based on business and industry specific factors

32
Q

Unallocated fixed overhead cost is accounted for as

A

expense when incurred

33
Q

In manufacturing inventory, what is the treatment of abnormal freight in costs?

A

expense for the period

34
Q

Inventory system with highest ending inventory

A

perpetual method applied to total inventory even with lcm applied

35
Q

How to compute the LIFO reserve account

A

always remember that LIFO reserve is a contra account to inventory
Get the new target first and adjust to the new target
LIFO Reserve Contra: Cost of Goods Sold

36
Q

Inventory valuation that gives the lowest ending inventory is

A

LIFO

37
Q

In periods of rising prices, applying the LCM rule and weighted average or moving average, what is the valuation which gives the highest ending inventory?

A

Perpetual method - total inventory