Acct. - Jackson - Ch. 7
Inventory Turnover Ratio
-The process of buying and selling inventory -The number of times inventory turns over during the period -A higher ratio means faster turnover -Cost of Goods Sold - Average Inventory [(BI+EI)/2]
Goods Available for Sale
-The sum of beginning inventory (BI) and purchases for the period (P)
A company's inventory records contain the following information: Beginning inventory 300 units@$2.60 Purchased on June 10 400 units @$2.925 Purchased on June 15 500 units @2.52 Purchased on June 28 300 units @3.30 The company sold 1,000 units during June. If the company uses the LIFO method, what is the cost of ending inventory?
-$1,365
If the company uses the weighted average inventory costing method, what is the cost of the ending inventory?
-$1,400
If the company uses the FIFO method, what is the cost of the ending inventory?
-$1,494
Your company sells $469,300 of goods during the year at a cost of goods sold of $398,600. Inventory was $29,783 at the beginning of the year and $34,038 at the end of the year. What is the inventory turnover ratio?
-12.5
Purchase Discount
-A cash discount received for prompt payment of a purchase on account
Which of the following companies would be least concerned about a low inventory turnover ratio?
-A hardware company selling drywall screws
An adjustment to ending inventory under the lower of cost or market (LCM) rule would be least likely to be recorded by a company that sells
-A household staple like laundry detergent
Days to Sell
-A measure of the average number of days from the time inventory is bought to the time it is sold -Average number of days from purchase to sale -A higher number means a longer time to sell -[(365)/(Inventory Turnover Ratio)]
Purchases Returns and Allowances
-A reduction in the cost of inventory purchases associated with unsatisfactory goods
Lower of Cost or Market (LCM)
-A valuation rule that requires Inventory to be written down when its market value falls below its cost
Weighted Average Cost
-An inventory costing assumption that uses the weighted average unit cost of goods available for sale for both cost of goods sold and ending inventory -Cost of Goods Available for Sale/Number of Units Available for Sale
First-In, First-Out (FIFO)
-Assumes that the costs of the first goods purchased (first in) are the costs of the first goods sold (first out)
Last-In, First-Out (LIFO)
-Assumes that the costs of the last goods purchased (last in) are the costs of the first goods sold (first out)
Merchandise Inventory
-Consists of products acquired in a finished condition, ready for sale without further processing
How is transportation cost on inventory purchases recorded?
-Debit inventory
The specific identification method would probably be most appropriate for which of the following goods?
-Diamond necklaces at a Tiffany's & Co. jewelry store
Cost of Goods Sold (COGS)
-Expresses the relationship between inventory on hand, purchased, and sold; shown as either (BI+P-EI=COGS) or (BI+P-COGS=EI)
Consignment Inventory
-Goods a company is holding on behalf of the goods' owner
A rising balance in the inventory account and a falling inventory turnover ratio implies that the inventory build up is occurring because
-Goods are not selling as fast as anticipated
Finished Goods Inventory
-Goods are ready for sale just like merchandise inventory
Inventory
-Goods that are held for sale in the normal course of business or are used to produce other goods for sale
Personal Inventory System
-It maintains an up-to-date balance in the Inventory account at all times
In a period of rising prices, FIFO will have a
-Lower cost of goods sold than LIFO
Primary Goals of Inventory Managers
-Maintain a sufficient quantity of inventory to meet customers' needs -Ensure inventory quality meets customers' expectations and company standards -Minimize the cost of acquiring and carrying inventory (including costs related to purchasing, production, storage, spoilage, theft, obsolescence, and financing)
Periodic Inventory System
-Maintains separate accounts for purchases, transportation, and so on
Raw Material Inventory
-Plastic, steel, or fabrics
Work in Process Inventory
-Raw materials enter the production process
Specific Identification
-The inventory costing method that identifies the cost of the specific item that was sold
