Chapter 5: Inventories and Cost of Sales

What costs are included in inventory?

• Only the shipping cost of the item

• Only the invoice cost of the item

• Only the discounts received on the item

• All expenditures necessary to bring an item to a salable condition and location

What is the purpose of taking a physical count of inventory?

• To calculate the inventory turnover ratio

• To determine the cost of goods sold

• To adjust the inventory account balance to the actual inventory available

• To identify damaged or obsolete goods

What are the four methods used to assign costs to inventory and cost of goods sold?

• Specific identification, FIFO, LIFO, and weighted average

• First-in, First-out (FIFO), Last-in, First-out (LIFO), Average cost, and Retail method

• Specific identification, Average cost, Gross profit method, and Retail method

• FIFO, LIFO, Average cost, and Gross profit method

Which inventory costing method assumes that the first units purchased are the first ones sold?

• Specific identification

• FIFO

• Weighted average

• LIFO

Which inventory costing method assumes that the last units purchased are the first ones sold?

• LIFO

• Specific identification

• FIFO

• Weighted average

How is the weighted average cost per unit calculated in a perpetual system?

• Total cost of goods purchased divided by total units purchased

• Total cost of goods sold divided by total units sold

• Total cost of goods in inventory divided by total units in inventory

• Total cost of goods available for sale divided by total units available

When purchase costs regularly rise, the following occurs under FIFO.

FIFO reports the _______(lowest/highest) cost of goods sold -yielding the ______(lowest/highest) gross profit and net income.

(a)  

Match the following methods with their advantages.