Inventory Fundamentals

What does FIFO stand for in inventory management?

• First Out, First In

• First In, Last Out

• Last In, First Out

• First In, First Out

Explain the FIFO method of inventory cost flow.

• The FIFO method of inventory cost flow assumes that the first items purchased are the first ones sold.

• In FIFO, the cost of inventory is calculated based on the average cost of all items.

• FIFO stands for First In First Out, meaning the last items purchased are sold first.

• The FIFO method assumes that the last items purchased are the first ones sold.

How does the LIFO method differ from the FIFO method?

• The LIFO method processes items in random order

• The FIFO method processes items based on their size

• The LIFO method processes items based on their alphabetical order

• The LIFO method processes the most recently added items first, whereas the FIFO method processes the first added items first.

Describe the Weighted Average method of inventory costing.

• The Weighted Average method involves assigning the same cost to all inventory items regardless of their actual cost

• The Weighted Average method calculates the cost of inventory items based only on their quantity, ignoring the actual cost

• The Weighted Average method of inventory costing involves calculating the average cost of inventory items based on both the cost and quantity of each item.

• The Weighted Average method of inventory costing is based on the last purchase price of each inventory item

What is the Lower of Cost or Market rule in inventory valuation?

• Inventory should be valued at the average of its historical cost and market value.

• Inventory should be valued at the market value only.

• Inventory should be valued at the lower of its historical cost or its market value.

• Inventory should be valued at the higher of its historical cost or its market value.

Define goods in transit in the context of inventory management.

• Items that are damaged during transportation

• Goods that are stored in a warehouse but not intended for sale

• Inventory items that have been shipped but have not yet reached their final destination.

• Inventory items that have been returned by customers

What are some common causes of inventory errors?

• Overabundance of snacks in the break room

• Inaccurate data entry, lack of proper training, poor organization, theft or shrinkage, software glitches

• Mercury being in retrograde

• Alien interference

How is loss on write down of inventory accounted for in financial statements?

• Treating the loss as a liability on the balance sheet without affecting the income statement.

• Recognizing the decrease in value as an expense on the income statement and reducing the reported inventory value on the balance sheet.

• Ignoring the loss completely in both the income statement and balance sheet.

• Recording the loss as revenue on the income statement and increasing the reported inventory value on the balance sheet.

Which inventory cost flow method assumes that the most recent costs are matched against revenue?

• Weighted Average

• FIFO

• Specific Identification

• LIFO

In which inventory cost flow method are the oldest costs matched against revenue first?

• LIFO

• Specific Identification

• Weighted Average

• FIFO