CPA Business Environment and Concepts (BEC) › Periodic vs Perpetual Inventory Systems
Which inventory costing method would a company that wishes to maximize profits in a period of rising prices use?
LIFO
Moving average
FIFO
Weighted average
Using the FIFO method during a period of rising prices would account for the inventory that is the least expensive from the warehouse, thus maximizing profit.
Under US GAAP, during periods of inflation, a perpetual system would result in the same dollar amount of ending inventory as a periodic system under which of the following valuation methods?
LIFO
FIFO
LIFO and FIFO
Neither
Only under FIFO would the use of a perpetual system result in the same dollar amount of ending inventory as a periodic system.
A corporation issues quarterly interim financial statements and uses the lower cost or market method to value its inventory in its annual financial statements. Which of the following statements is correct regarding how the corporation should value its inventory in its interim financial statements?
Inventory losses generally should be recognized in the interim statements
Gains from valuations in previous interim periods should be fully recognized
Only the cost method of valuation should be used
Temporary market declines should be recognized in the interim statements
Using the IFRS lower of cost or market process would entail recognizing inventory losses during interim periods.
What is the cost of ending inventory given the following factors? Beginning Inventory = $5,000 Total Production Costs = $60,000 Cost of Goods Sold = $55,000 Direct Labor = $40,000.
$50,000
$5,000
$45,000
$10,000
$5,000 + $60,000 - $55,000 = $10,000
What was ABC company's cost of goods manufactured if cost of goods sold is $43,000, ending finished goods inventory is $21,000, beginning finished goods inventory is $16,000 and net income is $19,000.
$38,000
$37,000
$50,000
$48,000
COGM = $43,000 + $21,000 - $16,000 = $48,000
The moving average method requires ____, while the weighted average method requires ______.
Periodic, perpetual
Perpetual, periodic
LIFO, FIFO
FIFO, LIFO
Both the weighted average method and moving average methods are alternatives to LIFO and FIFO.