chapter 7: FIFO bhaye

Question 1

what can inventory be used for

Answer 1

to sell them to customers

to make other goods or services which are to be sold

Question 2

what re merchandisers

Answer 2

people that purchase products, and resell them to their customers

Question 3

merchandise inventory

Answer 3

goods or merchandise held for resale in the ordinary course of the business

these are usually acquired in finished condition

ready to sell without further processing

Question 4

raw materials inventory

Answer 4

acquired by purchase

grown such as food products

extracted like natural resources to turn into finished goods

Question 5

work in process inventory

Answer 5

goods in the process of being manufactured but not yet complete

Question 6

finished goods inventory

Answer 6

manufactured goods that are complete and ready for sale

Question 7

when recording costs when acquiring inventory, are sales returns and discounts subtracted?

Answer 7

ye boy

Question 8

direct labor costs and factory overhead costs are part of what type of inventory costs?

Answer 8

inventory costs in the manufacturing environment

Question 9

direct labor costs

Answer 9

earnings of employees who work directly on the products being manufactured

Question 10

factory overhead costs

Answer 10

all manufacturing costs that are not raw material or direct labour costs

Question 11

what is the calculation for the costs of goods available for sale

Answer 11

sum of costs of beginning inventory and costs to new inventory added

Question 12

what is the cost of sales equation?

Answer 12

costs of Beginning Inventory + costs of new inventory (P) - Ending Inventory

Question 13

what inventory systems can be used to determine the costs of sales of a period and the cost of ending inventory of a period?

Answer 13

the perpetual inventory system

periodic inventory system

Question 14

perpetual inventory system

explain how it works

Answer 14

purchase transactions are directly recorded in an inventory account

when each sale is recorded, costs of sales must be recorded in the same time as well, while decreasing inventory

up to date record maintained on transaction-by-transaction basis

Question 15

when is the perpetual inventory system usually necessary?

Answer 15

purchasing decisions

manufacturing decisions

distribution decisions

Question 16

periodic inventory system

Answer 16

ending inventory and costs of sales are determined at the end of the period based on physical count

to find costs, we use the costs of sales equation

we look at the costs to get the different products remaining

inventory purchases are debited to a temporary account called purchases

revenues are recorded at the time of each sale

companies must estimate the value of inventory on hand

Question 17

why did people even start using the periodic system?

Answer 17

before computers and shit, it was low cost

Question 18

what are the disadvantages of the periodic system?

Answer 18

lack of timely inventory information

managers don’t know if there is too much or not enough

Question 19

what. made the perpetual inventory system better

Answer 19

offers more timeliness

Question 20

what does FOB destination point mean?

Answer 20

ownership of the product changes hands once it gets to the destination of the buyer

Question 21

what does FOB shipping point mean?

Answer 21

ownership of the product changes hands once it ships from the seller’s location

Question 22

what are the three inventory costing methods

Answer 22

1. specific identification
2. FIFO
3. Weighted average

Question 23

what is the specific identification method?

Answer 23

cost of each item sold is individually identified and recorded as cost of sales

Question 24

when is the specific identification method impractical?

Answer 24

when large quantities of similar items are kept in stock

Question 25

when is the specific identification method most useful?

Answer 25

when dealing with very expensive items

Question 26

how does the specifics identification method keep track of demand things?

Answer 26

1. coding the purchase cost on each unit before placing it in stock 2. keeping s separate record of the unit and identifying it with a serial number

Question 27

true or false the choice of an inventory costing method is based not he physical flow of goods on and off the shelves?

Answer 27

naaah boy that be false this is why the methods are called cost flow assumptions

Question 28

FIFO method

Answer 28

assumes the first units (first costs) are the first units sold each purchase is added to stack of identical products in order of which was bought first removed from stack in same sequence

Question 29

weighted average cost method

Answer 29

requires computation of the weighted-average unit cost of goods available for sale you keep track every sale and purchase once you sell something, the remaining inventory of that batch that you sold is added to more recent inventory (with different cost) and you average their costs together

Question 30

what is the difference in the statement of earnings between FIFO and weighted average?

Answer 30

when unit costs are rising, weighted average results in lower net earnings than FIFO when unit costs are declining, weighted average results in higher net earnings than FIFO

Question 31

what is the difference in the inventory valuation fort the statement of financial position between FIFO and weighted average?

Answer 31

when unit costs are rising, weighted average results in lower inventory valuation than FIFO when unit costs are declining, weighted average results in higher inventory valuation than FIFO furthermore, weighted average presents a mix of different costs, which can result in an unrealistic inventory valuation

Question 32

can companies change inventory costing method juste de meme?

Answer 32

nah boy only if it will make things clearer

Question 33

when prices rise, which inventory costing method would a company use between FIFO and weighted average when they consider income tax

Answer 33

weighted average since it produces lower earnings before income tax

Question 34

what can make the costs of inventories not be recoverable?

Answer 34

if the prices have declined they have been damaged have become obsolete they will lose money in the end

Question 35

what is net realizable value?

Answer 35

expected sales price - estimated selling costs it measures inventories at the lower of cost and net realizable value

Question 36

the lower of cost and net realizable value

Answer 36

valuation method departing from the cost principle serves to recognize a loss when net realizable value of inventory drops below its cost

Question 37

when is the consideration of the lower of cost and net realizable value most important? for which type of companies?

Answer 37

high-technology companies seasonal companies

Question 38

what are the effects of allowance for write downs of inventory to NRV on cost of sales, pretax earnings, and ending inventory on financial position at any period other than the period of sale?

Answer 38

costs of sale will increase pretax earnings will decrease ending inventory in statement of financial position will decrease all by same amount

Question 39

what are the effects of allowance for write downs of inventory to NRV on cost of sales, pretax earnings, and ending inventory on financial position at period of sale?

Answer 39

costs of sale will decrease pretax earnings will increase these two by same amount ending inventory in statement of financial position will be unaffected (still decreased from previous write off) it will remain reduced like this all year long unless the value of inventory increases once more

Question 40

which are the most important inventory control features?

Answer 40

1. separation of responsibilities for inventory accounting and physical handling of inventory 2. storage of inventory in a manner that protects it from theft and damage 3. limiting access to inventory to authorized employees 4. maintaining perpetual inventory records 5. comparing perpetual records to periodic physical accounts of inventory

Question 41

if inventory is overstated in one accounting period, what are the effects to costs of sales and beginning inventory of the current and next period?

Answer 41

cost of sales of current period would be understated in the next period beginning inventory would be overstated by same amount and costs of sales at the end of the period would be also overstated by the same amount

Question 42

does an inventory overstatement affect net earnings after two or three periods?

Answer 42

nah boy net earnings would stay the same as if it were fixed

Question 43

inventory turnover ratio calculation and meaning

Answer 43

you want to find out how efficient inventory management is cost of sales / average inventory 365 / inventory turnover ration reflects how many times inventory was purchased and sold during the year the higher the ratio, the gyuer it is because it means less cash is spent on inventory if it declines, it might mean demand for the company's products id declining

Question 44

true or false inventory can be a major determinant of a company's cash flows from operations?

Answer 44

true

Question 45

what is the effect of a write down of lower of cost or net realizable value on the Cost of sales (Not the same as total cost of items available for sale)

Answer 45

it will increase the cost of sales by the amount the rite down

Question 46

how do you find a write down

Answer 46

write down = total costs - LC and NRV valuation

Question 47

what happens to costs of sales and cost of ending inventory when the net realizable value of an item increase after a write down has been made

Answer 47

the difference between the increase in the value and the value after the write down is a reversal of that write down costs of sales will be reduced by the difference cost of ending inventory will increase by that same amount

Question 48

what would happen to the turnover ratio if inventory would to be deliver daily instead of weekly?

Answer 48

If parts inventory are delivered daily instead of weekly, then no need t0 stock large amounts of inventory This reduces the average inventory and increases the turnover ratio

Question 49

what would happen to the turnover ratio if payment period was extended?

Answer 49

Extending the payment period would not affect the cost of sales, nor would such action affect the inventory levels As a result, inventory turnover would not change

Question 50

what would happen to the turnover ratio if time to produce products would reduce?

Answer 50

finished products would be completed sooner and stocked in the warehouse This will increase the average inventory The cost of sales would not be affected by the shortened production process Consequently, the turnover ratio is likely to decrease

Question 51

when the sale terms are FOB destination point, who pays for the shipping?

Answer 51

buyer

Question 52

when the sale terms are FOB shipping point, who pays for the shipping?

Answer 52

seller