Accounting Test 2 - Ch. 6

Front 1

What is raw materials inventory?

Back 1

all the materials you've purchased for the product but have not yet been put in to production

Front 2

What is work-in-process inventory?

Back 2

products that are still being build ("work in process"

Front 3

What is included in the work-in-process inventory?

Back 3

• raw materials and components
• human labor
• factory utilities
• and other factory related resources

Front 4

What is Just-in-Case inventory?

Back 4

inventory to account for unforseen problems

Front 5

What is included in the inventory carrying cost? (3)

Back 5

• insurance
• building usage cost
• cost of capital invested by the inventory

Front 6

What is the difference between F.OB. shipping point and F.O.B destination?

Back 6

shipping point- the buyer is liable for the goods once they leave the seller

destination- the seller is responsible for the delivery of the goods until they reach the consumer

Front 7

The cost associated with an inventory shortage is know as _________ ___________.

Back 7

Inventory shrinkage

Front 8

If the physical inventory is greater than what is recorded on the books, the company makes an adjusting entry. What does that look like?

Back 8

Inventory

Cost of Goods Sold

Front 9

What does the specific identification method do?

Back 9

1. It keeps tracks of purchases and how much each unit costs and how many units were bought
2. once the ending inventory is recorded, the ending balance is subtracted from the original to get the Cost of Goods Sold

Front 10

How do you calculate Average Unit Cost?

Back 10

Total Cost of Goods Available for Sale

Total Units Available for Sale

Front 11

Which inventory method produces the highest year-end value inventory?

Back 11

FIFO

Front 12

What inventory method would be used by a company with a small volume of products with relatively high unit values? Such as airplanes, jewelry, and construction equipment.

Back 12

Specific Identification Method

Front 13

What type of inventory method would you want to use if you had perishable items?

Back 13

FIFO method - because you want to sell your most perishable items first

Front 14

Why might a company want to use the LIFO inventory method?

Back 14

the potential income tax savings associated with it's use

Front 15

When should one use the Weighed Average Cost Method?

Back 15

When they have a warehouse with a large volume of goods

Front 16

During times of rising inventory prices, which inventory method would you want to use because of the more favorable cash flow?

Back 16

LIFO

BUT: if the inventory prices are falling, you want to use FIFO

Front 17

What is the LIFO conformity rule?

Back 17

says that any company that selects LIFO for income tax must also use LIFO for financial reporting to shareholders

Front 18

Net realizable value is:

Back 18

the amount put on the books for how much you're going to get out of a product where you lose money

Exp: $300 camera can only be sold for $200 because it's damaged. There's also a $20 selling cost.

So the final amount you would journalize is $180

Front 19

What does inventory turnover indicate?

Back 19

how many times a year on average a firm sells its inventory

Front 20

How do you calculate inventory turnover?

Back 20

Cost of Goods Sold

Average inventory

Front 21

How do you calculate the Day's sales in inventory?

Back 21

______365_________

Inventory Turnover

Front 22

What does Days' sales in inventory calculate?

Back 22

How many days it takes on average for a firm to sell its inventory