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