The two most widely used methods for determining the cost of inventory are

A. gross profit and average

B. FIFO and LIFO

C. LIFO and average

D. FIFO and average

Which of the following companies would be more likely to use the specific identification inventory costing method?

A. Wal-Mart

B. Best Buy

C. Gordon’s Jewelers

D. Lowe’s

The following lots of a particular commodity were available for sale during the year:

Beginning inventory                  5 units at $61

First purchase                         15 units at $63

Second purchase                    10 units at $74

Third purchase                        10 units at $77

The firm uses the periodic system and there are 20 units of the commodity on hand at the end of the year. What is the amount of cost of good sold for the year according to the average cost method?

A. $1,375

B. $1,510

C. $1,380

D. $1,250

C. $1,380

[(5 x $61) + (15 x $63) + (10 x $74) + (10 x $77)] / (5 + 15 + 10 + 10) = $69 x 20 = $1,380 

The following lots of a particular commodity were available for sale during the year:

Beginning inventory          5 units at $61

First purchase                  15 units at $63

Second purchase             10 units at $74

Third purchase                 10 units at $77

The firm uses the periodic system and there are 20 units of the commodity on hand at the end of the year. What is the amount of cost of goods sold for the year according to the LIFO method?

A. $1,250

B. $1,375

C. $1,510

D. $1,380

C. $1,510

(10 X 77) + (10 X 74) = 1,510

*Side Note: LIFO - Amount of Cost of Goods Sold - Downward

Second purchase             10 units at $74

Third purchase                 10 units at $77

The method of computing inventory that uses records of the selling prices of the merchandise is called

A. first-in, first-out

B. average cost

C. last-in, first-out

D. retail method

Which of the following is used to analyze the efficiency and effectiveness of inventory management?

A. inventory turnover only

B. number of days’ sales in inventory only

C. both inventory turnover and number of days’ sales in inventory

D. neither inventory turnover or number of days’ sales in inventory

During a period of falling prices, which of the following inventory methods generally results in the lowest balance sheet amount for inventory.

A. average method

B. LIFO method

C. FIFO method

D. can not tell without more information

A physical inventory should be taken at the end of every month.

True

False

FIFO is the inventory costing method that follows the physical flow of the goods.

True

False

The lower-of-cost-or-market method of determining the value of ending inventory can be applied on an item by item, by major classification of inventory, or by the total inventory.

True

False

Inventory controls start when the merchandise is shelved in the store area.

True

False

Of the three widely used inventory costing methods (FIFO, LIFO, and average cost), the LIFO method of costing inventory assumes costs are charged based on the most recent purchases first.

True

False

One of the two internal control procedures over inventory is to properly report inventory on the financial statements.

True

False

The three inventory costing methods will normally each yield different amounts of net income.

True

False

If a company mistakenly counts less items during a physical inventory than actually exist, how will the error affect the cost of merchandise sold?

A. Understated

B. Overstated

C. No change.

D. Only inventory is affected.

On the basis of the following data, what is the estimated cost of the merchandise inventory on May 31 using the retail method?

                                                       Cost               Retail

May 1 Merchandise Inventory     $125,000       $166,667

May 1-31 Purchases (net)             235,000         313,333

May 1-31 Sales (net)                                           230,000

A. $187,500

B. $172,500

C. $360,000

D. $250,000

A. $187,500

(125,000 + 235,000) / (166,667 + 313,333) = 75%

((166,667 + 313,333) - 230,000) = 250,000 x 75% = 187,500

Total Cost / Total Retail  = Ratio of Cost to Retail Price

(Total Retail - Total Sales) x Ratio of Cost to Retial Price

The inventory method that assigns the most recent costs to cost of goods sold is

A. FIFO

B. LIFO

C. average

D. specific identification

The Boxwood Company sells blankets for $60 each. The following was taken from the inventory records during May. The company had no beginning inventory on May 1.

Date                  Product Z         Units        Cost

May 3                Purchase            5            $20

May 10              Sale                    3

May 17              Purchase           10           $24

May 20              Sale                    6

May 23              Sale                    3

May 30              Purchase           10           $30

Assuming that the company uses the perpetual inventory system, determine the cost of merchandise sold for the

sale of May 20 using the FIFO inventory cost method.

A. $180

B. $136

C. $144 

D. $120

B. $136

((5-3) x $20) + ((10-6) x $24)= $136

Side Note: FIFO

Date                  Product Z         Units        Cost

May 3                Purchase            5            $20

May 10              Sale                    3

May 17              Purchase           10           $24

May 20              Sale                    6

May 23              Sale                    3

May 30              Purchase           10           $30

The following lots of a particular commodity were available for sale during the year:

Beginning inventory  10 units at $30

First purchase           25 units at $32

Second purchase      30 units at $34

Third purchase          10 units at $35

The firm uses the periodic system and there are 20 units of the commodity on hand at the end of the year. What is the amount of inventory at the end of the year according to the average cost method?

A. $690

B. $659

C. $620 

D. $655

B. $659

[(10 x $30) + (25 x $32) + (30 x $34) + (10 x $35)] / [(10 + 25 + 30 + 10)] = 32.93

32.93 x 20 = $659

*Side Note:

(Total Cost of Purchase / Total Units) x 20 

Addison, Inc. uses a perpetual inventory system. The following is information about one inventory item for the

month of September:

Sep. 1    Inventory 20 units at $20

        4    Sold 10 units

      10    Purchased 30 units at $25

      17    Sold 20 units

      30    Purchased 10 units at $30

If Addison uses LIFO, the cost of the ending merchandise inventory on September 30 is

A. $750

B. $650

C. $800

D. $700

A. $750

((20 - 10) x 20) + ((30 - 20) x 25) + ((20 - 10) x 30) = $750 

(10 x 30) + (10 x 25) + (10 x 20) = $750

*Side Note: LIFO - Cost of the Ending Merchandise Inventory - Subtract and Multiply Upward

Sep. 1    Inventory 20 units at $20

        4    Sold 10 units

      10    Purchased 30 units at $25

      17    Sold 20 units 

      30    Purchased 10 units at $30

Merchandise inventory at the end of the year is overstated. Which of the following statements correctly states the effect of the error?

A. net income is understated

B. owner's equity is overstated

C. gross profit is understated

D. cost of merchandise sold is overstated

Cost flow is in the order in which costs were incurred when using

A. first-in, first-out

B. weighted average

C. last-in, first-out 

D. average cost

If a company uses the periodic inventory system to cost its inventory, the gross profit method is a method that can be used to check on theft when the actual inventory is taken by the company.

True

False

The average cost inventory method is rarely used with a perpetual inventory system.

True

False

During periods of increasing costs, the use of the FIFO method of costing inventory will result in a greater amount of net income than would result from the use of the LIFO cost method.

True

False

Number of Days’ Sales in Inventory

(Definition)

Measures the length of time it takes to acquire, sell, and replace inventory, computed by dividing the average inventory by the average daily cost of goods sold.