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Exam 6: Inventories and Cost of Sales

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Question 121

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An advantage of the ________ method of inventory valuation is that it tends to smooth out the effect of erratic changes in costs.

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Question 122

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The inventory valuation method that has the advantages of assigning an amount to inventory on the balance sheet that approximates its current cost, and also mimics the actual flow of goods for most businesses is:

A) Lower of cost or market.
B) Specific identification.
C) FIFO.
D) Weighted average.
E) LIFO.

F) C) and E)
G) A) and E)

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Question 123

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The inventory turnover ratio is calculated as:

A company uses the retail inventory method and has the following information available concerning its most recent accounting period: $\begin{array} { | l | l | r |} \hline& \text { At Cost } & \text { At Retrail } \\ \hline \text { January I beginging inventory } & \$ 167,340 & \$ 304,240 \\\hline\text { Cost of goods purchased } & 561,850 & 1,021,560 \\\hline \text { Sales } & & 940,400 \\\hline\text { Sales returns }&&40,200\\\hline\end{array}$ 1. Use the retail inventory method to estimate the company's year-end inventory at cost. 2. A year-end physical count at retail prices yields a total inventory of $404,800. Prepare a calculation showing the company's loss from shrinkage at cost and at retail.

Eastview Company uses a periodic LIFO inventory system, and has the following purchases and sales: $\begin{array} { | l | l | } \hline \text { January 1 } & 150 \text { units were purchased at \$9 per unit. } \\\hline \text { January 17 } & 120 \text { units were sold } \\\hline \text { January 20 } & 160 \text { units were purchased at \$11 per unit. } \\\hline \text { January 29 } & 150 \text { units were sold } \\\hline\end{array}$ - What is the value of cost of goods sold?

A company had the following purchases and sales during its first year of operations: $\begin{array} { | l | l | l | } \hline & \text { Purchases } & \text { Sal es } \\\hline \text { January. } & 10 \text { units at } \$ 120 & 6 \text { units } \\\hline \text { February. } & 20 \text { units at } \$ 125 & 5 \text { units } \\\hline \text { May. } & 15 \text { units at \$130 } & 9 \text { units } \\\hline \text { September: } & 12 \text { units at \$135 } & 8 \text { units } \\\hline \text { November: } & 10 \text { units at } \$ 140 & 13 \text { units } \\\hline\end{array}$ On December 31, there were 26 units remaining in ending inventory. -Using the Perpetual FIFO inventory valuation method, what is the value of cost of goods sold? (Assume all sales were made on the last day of the month.)

A company's inventory records report the following in November of the current year: $\begin{array} { | l | l | l | } \hline \text { Beginging } & \text { November 1 } & 5 \text { units @ \$20 } \\\hline \text { Purchase } & \text { November 2 } & 10 \text { units @ \$22 } \\\hline \text { Purchase } & \text { November 12 } & 6 \text { units @ \$25 } \\\hline\end{array}$ On November 8, it sold 12 units for $54 each. -Using the LIFO perpetual inventory method, what was the amount recorded in the cost of goods sold account for the 12 units sold?

An inventory error is sometimes said to be self-correcting because it yields an offsetting error in the next period.

Goods in transit are included in a purchaser's inventory:

A company had the following ending inventory costs: $\begin{array} { | c | c | r | r | } \hline \text { Product } & \text { Units of Hand } & \text { Unit Cost } & \text { Market Value } \\\hline \text { A } & 10 & \$ 5 &\$ 6 \\\hline \text { B } & 50 & 8 & 7 \\\hline \text { C } & 35 & 10 & 11 \\\hline\end{array}$ Required: Calculate the lower of cost or market (LCM) value for each individual item.

Determining the unit costs assigned to inventory items is one of the most important decisions in accounting for inventory.

Patrick Randall of Sports Supplies finds that maintaining appropriate levels of inventories while controlling costs is a major challenge. What are the challenges Patrick refers to?