Ch. 5

Question 0

Finished inventory

Answer 0

Inventory held by retailers and wholesalers

Question 1

2 types of inventory held by businesses?

Answer 1

Finished inventory, materials inventory

Question 2

Materials inventory

Answer 2

Inventory held by manufacturers

Question 3

3 types of inventory costs borne by manufacturers?

Answer 3

Direct materials
Direct labor
Manufacturing overhead

Question 4

3 distinct forms of inventory for a manufacturer?

Answer 4

Raw materials
Work in process
Finished goods

Question 5

Merchandise inventory

Answer 5

Account wholesalers and retailers use to report inventory held for resale

Question 6

Raw materials AKA Direct materials

Answer 6

Inventory of a manufacturer before addition of any direct labor or manufacturing overhead

Question 7

Direct labor

Answer 7

Amounts paid to workers to manufacture product

Question 8

Manufacturing overhead

Answer 8

Includes all other costs that relate to manufacturing process
But can’t be matched directly to specific units of out put

Ex. Depreciation of factory building, salary of supervisor

Question 9

Work in process AKA work in progress

Answer 9

Cost of unfinished products in manufacturing company

Question 10

Finished goods

Answer 10

Manufacturers inventory that is complete

And ready for sale

Question 11

Who uses a single cost to purchase inventory held for sale?

Answer 11

Resellers

Question 12

Gross profit AKA Gross margin

Answer 12

Gross profit = net sales - cost of goods sold

Question 13

Net sales

Answer 13

Net sales = sales revenue - sales returns and allowances

- sales discounts

Question 14

Sales revenue AKA sales

Answer 14

Representation of inflow of assets

Question 15

Sales returns and allowances

Answer 15

Contra-revenue account used to record refunds to customers

And reductions of their accounts

Question 16

Sales discounts

Answer 16

Contra-revenue account used to record discounts given to customers for early payment of their accounts

Question 17

Cost of goods available for sale

Answer 17

Cost of goods available for sale = beginning inventory +

Cost of goods purchased

Question 18

Cost of goods sold

Answer 18

COGS = cost of goods available for sale - ending inventory

Question 19

Perpetual system

Answer 19

System in which inventory account is increased
at time of each purchase and decreased at time
of each sale

Question 20

Periodic system

Answer 20

System in which inventory account is updated

Only at end of the period

Question 21

Transportation-in AKA Freight-in

Answer 21

Adjunct account used to record freight costs paid by buyer

Question 22

Purchases

Answer 22

Account used in periodic inventory system to record

Acquisitions of merchandise

Question 23

Purchase returns and allowances

Answer 23

Contra-purchases account used in periodic inventory system
When refund is received from supplier or reduction
Is given in balance owed to supplier

Question 24

Purchase Discounts

Answer 24

Contra-purchase account used to record reductions | In purchase price for early payment to supplier

Question 25

FOB destination point

Answer 25

Terms that require seller to pay cost of | Shipping merchandise to buyer

Question 26

FOB shipping point

Answer 26

Terms that require buyer to pay for shipping costs

Question 27

Cost of goods purchased

Answer 27

Cost of goods purchased = net purchases + transportation-in

Question 28

Gross profit ratio, calculate, indicates 2 things?

Answer 28

Gross profit ratio = gross profit/net sales Important measure of profitability, indicates company's ability to cover operating expenses

Question 29

4 common costs associated with inventory?

Answer 29

Freight costs Cost of insurance Cost of storing inventory Taxes paid

Question 30

Specific identification method

Answer 30

Inventory costing method that relies on matching | Unit costs with actual units sold

Question 31

Weighted average cost method

Answer 31

Inventory costing method that assigns same unit Cost to all units available for sale during period Weighted avg. cost = cost goods avail for sale/ units avail. for sale

Question 32

First in first out method (FIFO)

Answer 32

Inventory costing method that assigns most recent costs | To ending inventory

Question 33

Last in First out method (LIFO)

Answer 33

Inventory method that assigns the most recent costs | To cost of goods sold

Question 34

Inventory turnover ratio

Answer 34

Measure number of times inventory is sold over the period Inventory turnover ratio = cost of goods sold/avg. inventory

Question 35

Number of days' sales in inventory

Answer 35

Measure of how long it takes to sell inventory days' sales in inventory = # days in period/invent. turnover ratio