Chapter 6 LearnSmarts

Which methods are used for inventory costing?

FIFO LIFO Weighted-average Specific identification

The cumulative difference between reporting inventory at LIFO rather than FIFO is commonly referred to as the

LIFO reserve

simple identification method used for:

expensive products or unique products

What accounts are typically reported in the balance sheet of a manufacturing company?

finished goods, work in process, raw materials

Merchandising companies purchase inventory in ____________ form whereas manufacturing firms ____________ the goods

finished; produce

Net sales revenue - cost of goods sold =

gross profit

perpetual = "____________" periodic = "____________"

inventory; purchases

FIFO =

most closely approximates the actual physical flow of inventory

Wholesale and retail companies buy goods that are...

primarily in completed form

LIFO =

provides better matching of current revenues with current inventory costs

Which methods are not used for inventory costing?

simply average NIFO

The LIFO inventory method assumes that the units sold are....

the most recent units purchased

The LIFO inventory method assumes that the units that remain in the ending inventory are...

the oldest units in inventory

the lower of cost and net realizable value method represents an application of the ____________ principle or concept

conservatism

In times of rising prices, cost of goods sold determined using the LIFO inventory assumption typically will be _________ than cost of goods sold determined using the FIFO inventory assumption

higher

revenues and expenses arising from activities that are not part of the company's operations are classified as _____________ revenues and expenses

nonoperating

________ ______________ inventory includes the cost of components that will become part of the finished product but have not yet been used in production

raw materials

Work-in-progress inventory refers to products that have been started in the production process. The total cost include...

raw materials, direct labor, and indirect manufacturing costs (overhead)

Net realizable value

the estimated selling price of inventory less costs necessary to sell the inventory

Manufacturing companies buy goods that are....

used to produce another product

freight in is recorded as part of ________ whereas freight out is often recorded as __________

inventory; selling expense