Chapter 6 Inventory Costing Methods Quiz

True or False: Ending Merchandise Inventory can be calculated by multiplying the number of units on hand by the unit cost.

• True

• False

Which of the following is a viable option for computing Cost of Goods Sold?

• Gross Margin – Revenue

• Number of Units sold x Unit Cost

• Sum of all expenses in the period

• None of the above.

True or False: Cost of Goods Sold is computed and finalized a week before the period ends.

• True

• False

Which of the following is NOT an inventory costing method that is approved by GAAP?

• Specific identification

• First-in, first-out (FIFO)

• Last-in, last-out (LILO)

• Weighted-average

• All of these are approved by GAAP.

To the best of your knowledge, explain why choosing the right inventory costing method is essential to a business. Provide an explanation of the problems that could occur with a business choosing the wrong inventory method.

True or False: Specific identification method is an inventory costing method based on the specific cost of particular units of inventory.

• True

• False

According to the FIFO costing method…

• Cost of Goods Sold (COGS) is based on oldest purchases.

• Ending inventory reflects current replacement cost.

• First units to be purchased by the business are the first to be sold.

• Only A and C are true.

• A, B, and C are true.

Fill in the blanks: Cost of goods available for sale is the __________ cost spent on inventory that was available to be ___________ during a period.

(Format answers as "word; word")

Under the LIFO costing method, which of the following statements is FALSE?

• LIFO is equivalent to the opposite of FIFO.

• As inventory is sold, the cost of the oldest units is applied to each unit as Cost of Goods Sold.

• Ending inventory contains the oldest costing units.

• These are all true.

Weighted average method is characterized by all of the following except:

• Computes a new weighted-average cost per unit after each purchase.

• Determined by dividing the cost of goods available for sale by the number of units available.

• Ending Inventory and Cost of Goods Sold are based on the same unit cost.

• It is the most efficient method of costing inventory.