Deck 7: Inventory

Question 1

All of the following are typical manufacturing costs except:

A)raw materials.
B)direct labour.
C)freight out
D)freight in

Answer 1

C

Question 2

One way to estimate the cost of goods sold is to multiply the sales revenue for the period by the inventory turnover ratio.

Answer 2

False

Question 3

The market in which a company sells its products is referred to as:

A)the wholesale market.
B)the retail market.
C)an input market.
D)an exit market.

Answer 3

D

Question 4

All of the following are manufacturing accounts except for:

A)Cost of goods available for sale
B)raw materials
C)finished goods
D)work in process

Question 5

If inventory is valued using a __________________system, then no profit is recognized when an inventory item is sold.

A)net realizable value
B)replacement cost
C)purchasing power
D)acquisition cost

Question 6

Perpetual inventory systems provide more timely information than periodic systems.

Question 7

If a company's inventory turnover ratio is 6.6 it takes them on average 55 days to sell their inventory.

Question 8

The LCM rule is usually applied to groups of similar items.

Question 9

Which of the following risks are unique to inventory as an asset class?

A)Finding suppliers and obsolescence
B)Finding suppliers and estimating collection
C)Finding buyers and obsolescence
D)Finding buyers and estimating collection

Question 10

The inventory turnover ratio is calculated as cost of goods sold divided by total inventory.

Question 11

Which of the following should be included in the cost of inventory?

A)The cost of keeping the inventory records
B)Amortization on the inventory warehouse
C)The salesperson's commission.
D)Receiving and inspection costs

Question 12

Which of the following is the correct flow of costs in a manufacturing operation?

A)Raw materials to finished goods
B)Raw materials to finished goods to work-in-process
C)Raw materials to work-in-process to finished goods
D)Direct materials to work-in-process to finished goods.

Question 13

Which of the following is not an inventory account in a manufacturing company?

A)Raw material
B)Work in process
C)Goods available for sale
D)Finished goods

Question 14

Periodic inventory systems provide more relevant and timely information to managers for decision making purposes than perpetual inventory systems do.

Question 15

Perpetual inventory systems are incapable of identifying inventory shrinkage.

Question 16

Net realizable value is also known as the:

A)replacement cost.
B)wholesale price.
C)exit price.
D)input price.

Question 17

Inventory sold as a result of liquidation or bankruptcy is:

A)reflective of the market value
B)subject to normal valuation and accounting procedures
C)in violation of the matching principle
D)in violation of the going concern principle

Question 18

Under the FIFO inventory assumption the cost of ending inventory and cost of goods sold will be the same under both the perpetual and periodic inventory systems.

Question 19

If prices were rising and a Canadian company wanted to report a smaller amount of profit for tax purposes, they should use the moving average cost flow assumption.

Question 20

The cost flow assumption used by a firm must match the physical flow of units through the firm.

Question 21

Use the following information to answer questions
Handel Inc.values its inventory on an LCM basis.The following data came from the 2011 inventory, which consisted of two items: $\begin{array}{lrr}&\text { Item \# 130}&\text { Item \# 140 }\\\hline\text { Original cost } & \$ 12,000 & \$ 15,000 \\\text { Selling price } & 15,000 & 26,000 \\\text { Estimated selling costs } & 5,000 & 10,000 \\\text { Replacement cost } & 13,000 & 15,000 \\\text { Normal profit margin } & 1,500 & 1,000\end{array}$

-The appropriate carrying value for the entire inventory when applying the LCM rule using net realizable value to the inventory as a whole would be:

A)$25,000
B)$26,000
C)$27,000
D)$28,000

Question 22

IFRS standards require that a firm select the cost flow assumption that:

A)maximizes income.
B)provides the most conservative inventory cost.
C)most clearly reflects current income.
D)most closely matches the physical flow of inventory.

Question 23

The holding loss incurred from applying the LCM rule to inventory is:

A)not reflected on the balance sheet.
B)an adjustment to cost of goods sold.
C)not reflected on the income statement.
D)not considered a permanent loss.

Question 24

Under the direct method, the unrealized losses that result from the application of the LCM rule are often hidden in the:

A)selling expense.
B)inventory account.
C)cost of goods sold.
D)loss due to market decline of inventory.

Question 25

Which of the following is true under a periodic system:

A)A COGS expense is recognized each time a sale is made
B)The inventory account is not updated with each purchase.
C)Inventory shrinkage is easily identified.
D)This system can be costly to implement.

Question 26

Which of the following would be most likely to use the specific identification method?

A)shoe store
B)car dealership
C)grocery store
D)bookstore

Question 27

The following amounts are always known under which inventory costing system?

Question 28

In a manufacturing process overhead costs are added to which inventory account?

A)Raw materials
B)Finished goods
C)Work-in-process
D)Cost of goods sold

Question 29

When a periodic inventory system is used:

A)inventory shrinkage is impossible to calculate.
B)timely data is of utmost importance.
C)cost of goods sold is always known.
D)every inventory transaction is reflected in the inventory account.

Question 30

When a company is evaluating whether or not to use a perpetual vs.a periodic inventory system the following statement is most accurate:

A)A perpetual inventory system provides far superior information and should be used at any cost.
B)A periodic system is inferior and should never be used if possible.
C)The cost of the system used should be measured against the benefits it provides.
D)Both systems are equally good.

Question 31

Which of the following cost flow assumptions would be most appropriate when the inventory units are unique or costly?

A)FIFO
B)Specific identification
C)Just-in-time
D)Moving average

Question 32

Use the following information to answer questions
Handel Inc.values its inventory on an LCM basis.The following data came from the 2011 inventory, which consisted of two items: $\begin{array}{lrr}&\text { Item \# 130}&\text { Item \# 140 }\\\hline\text { Original cost } & \$ 12,000 & \$ 15,000 \\\text { Selling price } & 15,000 & 26,000 \\\text { Estimated selling costs } & 5,000 & 10,000 \\\text { Replacement cost } & 13,000 & 15,000 \\\text { Normal profit margin } & 1,500 & 1,000\end{array}$

-The appropriate carrying value for the entire inventory when applying the LCM rule using net realizable value on an item-by-item basis would be:

A)$25,000
B)$26,000
C)$27,000
D)$28,000

Question 33

Which of the following would most likely use a perpetual inventory system?

A)Hardware store
B)Shoe store
C)Car dealership
D)Bookstore

Question 34

When applying the LCM using the direct method the following is true:

A)The inventory account remains at its original value
B)A contra account to inventory is used
C)COGS rises when ending inventory is reduced to market value
D)LCM can only be applied to individual items.

Question 35

Tommy Co.prepares its estimate of LCM using the net realizable value.Inventory item 101 cost $45 and its current replacement cost is $50.The item is currently selling in the market for $55 and selling costs are estimated to be $6.Tommy expects to earn a profit of $4 on the sale of this item.In its year-end financial statements, Tommy Co.should value this item at:

A)$50
B)$45
C)$49
D)$55

Question 36

Which of the following statements best describes net realizable value when applying the LCM rule?

A)Net realizable value is the selling price less the costs necessary to sell the item.
B)Net realizable value is the selling price plus the costs necessary to sell the item.
C)Net realizable value is the selling price plus the normal profit margin.
D)Net realizable value is the selling price less the normal profit margin.

Question 37

When using the LCM rule in Canada the market value is most commonly:

A)net present value.
B)selling price less profit margin.
C)replacement cost.
D)net realizable value.

Question 38

When a perpetual inventory system is used:

A)a physical inventory count must be taken to determine cost of goods sold.
B)inventory shrinkage is difficult to determine.
C)the cost of each item sold must be known.
D)timeliness of data is sacrificed for lower costs of operation.

Question 39

Which of the following would most likely use a periodic inventory system?

A)Car dealership
B)Jewelry store
C)Computer dealership
D)Hardware store

Question 40

The bar scanners in a grocery store are most likely used to track:

A)only the costs of the items sold.
B)only the number of units sold.
C)both the price and the costs of the units sold.
D)both the costs and the numbers of units sold.

Question 41

Use the following information for questions:
Berenger Industries had the following activity with one of its inventory items during the current period: $\begin{array}{llrr}&\text { Units } & \text {Unit Cost }\\\hline\text { Beginning inventory } & 30 & \$ 8.00 \\\text { Purchase } & \text { October 5 } & 80 & 10.50 \\\text { Sale } & \text { October 11 } & (40) & \\\text { Purchase } & \text { October 17 } & 60 & 12.00 \\\text { Sale } & \text { October 26 } & (70) &\end{array}$

-Using a perpetual inventory system and the FIFO cost flow assumption, the cost of goods sold was:

A)$975
B)$1,080
C)$1,175
D)$1,300

Question 42

Which of the following statements about the FIFO cost assumption is true?

A)The same costs per unit are assigned to the ending inventory and the cost of goods sold.
B)Companies prefer to use FIFO because it lowers their tax liability.
C)In times of rising prices FIFO will produce a higher net income than moving average.
D)In time of rising prices FIFO produces an inventory cost per unit that is lower than the cost per unit of cost of goods sold.

Question 43

Use the following information for questions:
A company had the following inventory activity during January: $\begin{array}{lrrr}&\text { Units}&\text { Unit Cost }&\text {Total Cost }\\\hline\text { Beginning inventory } & 800 & \$ 10.00 & \$ 8,000 \\\text { Purchase: January } 5 & 1,400 & 11.00 & 15,400 \\\text { Sale: January } 8 & (1,500) & & \\\text { Purchase: January 13 } & 900 & 10.50 & 9,450 \\\text { Sales: January } 24 & (900) & &\end{array}$

-If the company is using a perpetual system and the FIFO costing assumption, what is the ending inventory closest to?

A)$7,100
B)$7,350
C)$7,650
D)$7,920

Question 44

Use the following information for questions:
A company had the following inventory activity during May: $\begin{array}{lrrrr}&\text { Units}&\text { Unit Cost }&\text {Total Cost }&\text { Unit Price }\\\hline\text { Beginning inventory } & 100 & \$ 20.00 & \$ 2,000 & \\\text { Purchase: May 3 } & 900 & \$ 21.00 & 18,900 & \\\text { Sale: May 5 } & (900) & & & \$ 30.00 \\\text { Purchase: May 15 } & 1,000 & \$ 21.00 & 21,000 & \\\text { Sale: } & (900) & & & \$ 30.00\end{array}$

-If the company uses a perpetual system and the FIFO cost flow assumption, what is the gross margin on the May 5 sale closest to?

A)$6,100
B)$8,100
C)$8,200
D)$8,550

Question 45

Which of the following cost flow assumptions would be most appropriate for costing an inventory of liquids stored in tanks?

A)Moving average
B)FIFO
C)Periodic
D)Perpetual

Question 46

Use the following information for questions:
A company had the following inventory activity during January: $\begin{array}{lrrr}&\text { Units}&\text { Unit Cost }&\text {Total Cost }\\\hline\text { Beginning inventory } & 800 & \$ 10.00 & \$ 8,000 \\\text { Purchase: January } 5 & 1,400 & 11.00 & 15,400 \\\text { Sale: January } 8 & (1,500) & & \\\text { Purchase: January 13 } & 900 & 10.50 & 9,450 \\\text { Sales: January } 24 & (900) & &\end{array}$

-The cost of goods available for sale was closest to:

A)$24,850
B)$25,500
C)$32,400
D)$32,850

Question 47

Effective inventory management would have one person place the order for new inventory, a second person check it against the purchase order when it arrives and a third person record the receipt of inventory in the accounting records.The purpose of this system is:

A)to reduce spoilage.
C)to guard against stock-outs.
D)to guard against internal theft and collusion.
E)to reduce storage costs.

Question 48

Use the following information for questions:
A company had the following inventory activity during January: $\begin{array}{lrrr}&\text { Units}&\text { Unit Cost }&\text {Total Cost }\\\hline\text { Beginning inventory } & 800 & \$ 10.00 & \$ 8,000 \\\text { Purchase: January } 5 & 1,400 & 11.00 & 15,400 \\\text { Sale: January } 8 & (1,500) & & \\\text { Purchase: January 13 } & 900 & 10.50 & 9,450 \\\text { Sales: January } 24 & (900) & &\end{array}$

-If the company is using a perpetual system and the FIFO costing assumption, what is the cost of goods sold closest to?

A)$25,700
B)$25,500
C)$25,200
D)$25,930

Question 49

Which of the following statements about the moving average cost assumption is true?

A)If prices are rising companies prefer it because it lowers their tax liability.
B)It is the most popular method in Canada.
C)In times of rising prices moving average will produce a higher net income than FIFO.
D)In time of rising prices moving average produces an inventory cost per unit that is higher than the cost per unit of cost of goods sold.

Question 50

Which cost flow assumption will produce the same results under both the periodic and perpetual inventory systems?

A)FIFO
B)Moving average
C)They both produce the same results.
D)They both produce different results.

Question 51

Management incentives to overstate ending inventory include all of the following except:

A)increasing the current year's income.
B)increasing next year's income.
C)increasing the collateral value for a loan.
D)increasing the current ratio.

Question 52

Use the following information for questions:
Berenger Industries had the following activity with one of its inventory items during the current period: $\begin{array}{llrr}&\text { Units } & \text {Unit Cost }\\\hline\text { Beginning inventory } & 30 & \$ 8.00 \\\text { Purchase } & \text { October 5 } & 80 & 10.50 \\\text { Sale } & \text { October 11 } & (40) & \\\text { Purchase } & \text { October 17 } & 60 & 12.00 \\\text { Sale } & \text { October 26 } & (70) &\end{array}$

-Using a perpetual inventory system and the FIFO cost flow assumption, the ending inventory was valued at:

A)$500
B)$625
C)$720
D)$825

Question 53

An inventory of grocery items where the shelves are stocked from the back would be similar to which cost flow assumption?

A)FIFO
B)Specific identification
C)Moving average
D)FISH

Question 54

The acronym used to refer to ending inventory under the FIFO method is:

A)LISH
B)LISF
C)FISH
D)FISF

Question 55

Use the following information for questions:
A company had the following inventory activity during January: $\begin{array}{lrrr}&\text { Units}&\text { Unit Cost }&\text {Total Cost }\\\hline\text { Beginning inventory } & 800 & \$ 10.00 & \$ 8,000 \\\text { Purchase: January } 5 & 1,400 & 11.00 & 15,400 \\\text { Sale: January } 8 & (1,500) & & \\\text { Purchase: January 13 } & 900 & 10.50 & 9,450 \\\text { Sales: January } 24 & (900) & &\end{array}$

-If the company is using a perpetual system and the moving average costing assumption, what is the cost of goods sold closest to?

A)$24,380
B)$24,840
C)$25,459
D)$25,631

Question 56

Use the following information for questions:
A company had the following inventory activity during May: $\begin{array}{lrrrr}&\text { Units}&\text { Unit Cost }&\text {Total Cost }&\text { Unit Price }\\\hline\text { Beginning inventory } & 100 & \$ 20.00 & \$ 2,000 & \\\text { Purchase: May 3 } & 900 & \$ 21.00 & 18,900 & \\\text { Sale: May 5 } & (900) & & & \$ 30.00 \\\text { Purchase: May 15 } & 1,000 & \$ 21.00 & 21,000 & \\\text { Sale: } & (900) & & & \$ 30.00\end{array}$

-If the company uses a perpetual system and the moving average cost flow assumption, what is the gross margin on the May 5 sale closest to?

A)$6,100
B)$8,100
C)$8,190
D)$8,550

Question 57

Use the following information for questions:
Berenger Industries had the following activity with one of its inventory items during the current period: $\begin{array}{llrr}&\text { Units } & \text {Unit Cost }\\\hline\text { Beginning inventory } & 30 & \$ 8.00 \\\text { Purchase } & \text { October 5 } & 80 & 10.50 \\\text { Sale } & \text { October 11 } & (40) & \\\text { Purchase } & \text { October 17 } & 60 & 12.00 \\\text { Sale } & \text { October 26 } & (70) &\end{array}$

-Using a perpetual inventory system and the moving average cost flow assumption, the cost of goods sold for the October 11 sale was closest to:

A)$540
B)$420
C)$393
D)$370

Question 58

Use of the FIFO cost flow assumption means that:

A)the perpetual costing system is used.
B)the ending inventory contains the oldest costs.
C)the periodic costing system is used.
D)the ending inventory contains the most recent costs.

Question 59

Use the following information for questions:
A company had the following inventory activity during January: $\begin{array}{lrrr}&\text { Units}&\text { Unit Cost }&\text {Total Cost }\\\hline\text { Beginning inventory } & 800 & \$ 10.00 & \$ 8,000 \\\text { Purchase: January } 5 & 1,400 & 11.00 & 15,400 \\\text { Sale: January } 8 & (1,500) & & \\\text { Purchase: January 13 } & 900 & 10.50 & 9,450 \\\text { Sales: January } 24 & (900) & &\end{array}$

-If the company is using a perpetual system and the moving average costing assumption, what is the ending inventory closest to?

A)$8,470
B)$7,777
C)$7,560
D)$7,391

Question 60

Use the following information for questions:
A company had the following inventory activity during May: $\begin{array}{lrrrr}&\text { Units}&\text { Unit Cost }&\text {Total Cost }&\text { Unit Price }\\\hline\text { Beginning inventory } & 100 & \$ 20.00 & \$ 2,000 & \\\text { Purchase: May 3 } & 900 & \$ 21.00 & 18,900 & \\\text { Sale: May 5 } & (900) & & & \$ 30.00 \\\text { Purchase: May 15 } & 1,000 & \$ 21.00 & 21,000 & \\\text { Sale: } & (900) & & & \$ 30.00\end{array}$

-If the company uses a perpetual system and the FIFO cost flow assumption, what is the gross margin for the month closest to:

A)$12,100
B)$16,200
C)$16,300
D)$17.100

Question 61

Francine Ltd.had beginning inventory of $10,000 and purchased $75,000 during 2011.The company had sales of $90,000 and has traditionally had a cost-to-sales ratio of 75%.Using the gross margin estimation method, the company estimates its ending inventory to be:

A)$67,500
B)$65,000
C)$17,500
D)$22,500

Question 62

Jordan Company has a normal markup of 40%.Its cost-to-sales ratio is:

A)71.4%
B)67.5%
C)60%
D)Cannot be calculated

Question 63

Blarney Ltd.had a fire at its warehouse and was trying to determine the cost of the inventory lost.For the year to date sales had been $525,000, opening inventory was $25,000, purchases to date were $198,000, the cost-to-sales ratio is normally 60%.Inventory not damaged in the fire was $18,000.What was the cost of the inventory damaged in the fire?

A)$110,000
B)$124,000
C)$160,000
D)$74,000

Question 64

In 2011 Borger Inc.had beginning inventory of $106,000, purchases of $1,126,500, ending inventory of $116,000, accounts payable of $49,605, and sales of $2,147,250.Inventory turnover for 2011 was closest to:

A)9.625
B)10.06
C)10.15
D)10.53