Exam 6: Inventory Costing and Valuation

In applying the faithful representation principle, an accountant should choose the most realistic value available, so that the inventory value is not overstated.

The consistency principle:

Generally accepted accounting principles require that the inventory of a company be reported at:

The gross profit ratio measures how much of each dollar of gross sales is gross profit.

Player Company made the following merchandise purchases during the current year: There was no beginning inventory, but ending inventory consisted of 400 units. If Player uses the first-in, first-out method and the periodic inventory system, what would be the cost of the ending inventory?

Trekking Company's cost of goods sold was $15,550. Its average merchandise inventory was $4,575. Its merchandise turnover was 3.4.

In applying LCNRV, net realizable value is defined as the sales price less costs incurred to make the sale.

Explain the difference between the retail method and gross profit method for valuing inventory.

The merchandise turnover ratio is calculated by dividing average merchandise inventory by cost of goods sold.

The total dollar value of inventory on hand is determined byestimating the units on hand, (2)multiplying the count by cost per unit, and (3)adding the costs for allproducts.

Damaged or obsolete goods:

Use of the FIFO cost flow assumption means that:

When businesses apply the lower of cost and net realizable value rule on an item by item basis, they will report the lowest inventory value possible.

The three methods of inventory valuation that are most often used in Canada are specific identification, FIFO, and (moving)weighted average.

Trekking Company reported the following data: Instructions:(1)Calculate Trekking Company's merchandise turnover for each year to two decimal places.(2)Comment on the company's efficiency in managing its inventory.

All businesses should take an inventory count once each year to avoid inventory errors or shortages.

Physical counts of inventory:

Goods on consignment are goods shipped by their owner, called the consignee, to another party called the consignor.

All businesses should take an inventory count once each year to identify inventory errors or shortages.

The days' sales in inventory ratio is calculated by dividing ending inventory by cost of goods sold and multiplying the result by 365.