University:
Grand Rapids Community College
Course:
Financial and Managerial Accounting: Information for Decisions - John J. Wild
Academic year:

2024
Views:

115

Pages:

2
Author:

stud_ice13

Inventory Basics Recap: • • • • FOB Shipping Point: Goods are included in the buyer’s inventory once shipped. FOB Destination: Goods are included in the buyer’s inventory after they arrive. Consignee: Does not report consigned goods as inventory; the consignor does until sold. Merchandise Inventory: Includes all necessary costs to prepare items for sale (e.g., shipping, storage, import fees). Inventory Costing Methods: • • • • FIFO (First-In, First-Out): The earliest purchased goods are sold first. In rising costs, FIFO results in lower COGS and higher income. LIFO (Last-In, First-Out): The latest purchased goods are sold first. In rising costs, LIFO leads to higher COGS and lower income. Weighted Average: Uses the average cost of inventory for each sale. It yields results between FIFO and LIFO. Specific Identification (SI): Directly assigns the cost of each specific unit to COGS. Inventory Valuation: • • • Lower of Cost or Market (LCM): Inventory is valued at the lower of cost or current market value. Adjustments are made when the market value is lower than the cost, but not when it's higher. Example: A roadster costing $170,000 with a market value of $140,000 is reported at $140,000. LCM Journal Entry: Adjusts inventory from its original value to reflect market conditions. Key Terms Recap: • • Inventory Turnover: Measures how often inventory is sold and replaced. Days’ Sales in Inventory: Shows how long it takes to sell inventory. Multiple Choice Quiz Explanation: 1. Ending Inventory (Perpetual FIFO): This refers to how much inventory is left at the end of the period when using FIFO under a perpetual system. For Marvel Company, the answer was $2,940. 2. Ending Inventory (Perpetual LIFO): Using the perpetual LIFO system for inventory costing, the ending inventory was $2,685. 3. Specific Identification (Perpetual & Periodic): Since the method is the same for both systems, the ending inventory computation here was $2,852. 4. Ending Inventory (Periodic FIFO): Under the periodic FIFO method, the ending inventory was $2,940. 5. Cost of Goods Sold (LIFO Periodic): Under LIFO periodic, the correct cost of goods sold (COGS) was $1,460. 6. Days’ Sales in Inventory Calculation: Formula: Days' Sales in Inventory = (Ending Inventory ÷ COGS) × 365 Using $18,000 for ending inventory and $85,000 for COGS, the result was 77.29 days. Conclusion: Understanding these methods helps assess financial performance and informs decisions on inventory valuation and management.