Inventory Costing Methods - CPA Financial Accounting and Reporting (FAR)
Card 1 of 16
A company has two pieces of Inventory, A and B. Inventory A cost the company $40 per unit and can now be sold for $60 per unit after incurring $15 in selling expenses per unit. It has a replacement cost of $35 per unit and a normal profit of $4 per unit. Inventory B cost the company $52 per unit and can now be sold for $63 per unit after incurring $15 in selling expenses per unit. It has a replacement cost of $55 per unit and a normal profit of $4 per unit. If the company uses the retail method to value its inventory, how much should be reported on the balance sheet for these items?
A company has two pieces of Inventory, A and B. Inventory A cost the company $40 per unit and can now be sold for $60 per unit after incurring $15 in selling expenses per unit. It has a replacement cost of $35 per unit and a normal profit of $4 per unit. Inventory B cost the company $52 per unit and can now be sold for $63 per unit after incurring $15 in selling expenses per unit. It has a replacement cost of $55 per unit and a normal profit of $4 per unit. If the company uses the retail method to value its inventory, how much should be reported on the balance sheet for these items?
Tap to reveal answer
The inventory should be reported at the lower of cost or market, subject to a ceiling and floor. Replacement cost is used unless it is higher than the ceiling or lower than the floor. For Item A, the ceiling value is $45 ($60 selling price - $15 selling expenses). The floor value is $41 ($45 - $4 profit margin). The historical cost of Item A is lower and thus is used in inventory valuation. For Item B, the ceiling value is $48 (sales price of $63 - $15 selling expenses). The floor value is $44 ($48 - $4 profit margin). Replacement cost is used because it isn't above the ceiling for Item B.
The inventory should be reported at the lower of cost or market, subject to a ceiling and floor. Replacement cost is used unless it is higher than the ceiling or lower than the floor. For Item A, the ceiling value is $45 ($60 selling price - $15 selling expenses). The floor value is $41 ($45 - $4 profit margin). The historical cost of Item A is lower and thus is used in inventory valuation. For Item B, the ceiling value is $48 (sales price of $63 - $15 selling expenses). The floor value is $44 ($48 - $4 profit margin). Replacement cost is used because it isn't above the ceiling for Item B.
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A company counts its inventory and arrives at a total of $167,000. The company fears that some merchandise has been stolen and seeks to estimate the amount of the loss. Sales for the period were $600,000. Gross profit is set by the company at a standard 40% of the sales price. According to ledger balances, inventory on the first day of the year was $150,000 and purchases of $390,000 were made during the period. How much theft has occurred?
A company counts its inventory and arrives at a total of $167,000. The company fears that some merchandise has been stolen and seeks to estimate the amount of the loss. Sales for the period were $600,000. Gross profit is set by the company at a standard 40% of the sales price. According to ledger balances, inventory on the first day of the year was $150,000 and purchases of $390,000 were made during the period. How much theft has occurred?
Tap to reveal answer
If gross profit is 40%, COGS is 60%, meaning that the sales of $600K had a cost of $360K ($600K x 60%). Ending inventory should be $150K beginning inventory plus purchases of $390K minus sales of $360K, for correct ending inventory of $180K. The inventory count only found $167K, for a difference of $13K.
If gross profit is 40%, COGS is 60%, meaning that the sales of $600K had a cost of $360K ($600K x 60%). Ending inventory should be $150K beginning inventory plus purchases of $390K minus sales of $360K, for correct ending inventory of $180K. The inventory count only found $167K, for a difference of $13K.
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A company buys 100 units of inventory for $20 each. Later, 90 of these units are sold on credit for $50 each. The company then buys an additional 40 units but the cost has risen to $22 each. The company sells a final 30 units for $55 each. The company uses a moving average system for calculating its cost of goods sold. What should be reported as the cost of the 120 units sold during the year?
A company buys 100 units of inventory for $20 each. Later, 90 of these units are sold on credit for $50 each. The company then buys an additional 40 units but the cost has risen to $22 each. The company sells a final 30 units for $55 each. The company uses a moving average system for calculating its cost of goods sold. What should be reported as the cost of the 120 units sold during the year?
Tap to reveal answer
The moving average cost of inventory is calculated by recalculating the average cost each time a sale is made. When 90 units are sold, the average cost is $20 per unit. After the second purchase, the remaining units have a total cost of $1,080 (10 x $20 + 40 x $22) and the average cost is $21.6 ($1,080/50 units). The total cost of the sold units is $21.6 x 30 + $20 x 90.
The moving average cost of inventory is calculated by recalculating the average cost each time a sale is made. When 90 units are sold, the average cost is $20 per unit. After the second purchase, the remaining units have a total cost of $1,080 (10 x $20 + 40 x $22) and the average cost is $21.6 ($1,080/50 units). The total cost of the sold units is $21.6 x 30 + $20 x 90.
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Of the following, which is not a legitimate method of inventory costing?
Of the following, which is not a legitimate method of inventory costing?
Tap to reveal answer
There is no such concept of a Discounted Method in inventory valuation.
There is no such concept of a Discounted Method in inventory valuation.
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A company has two pieces of Inventory, A and B. Inventory A cost the company $40 per unit and can now be sold for $60 per unit after incurring $15 in selling expenses per unit. It has a replacement cost of $35 per unit and a normal profit of $4 per unit. Inventory B cost the company $52 per unit and can now be sold for $63 per unit after incurring $15 in selling expenses per unit. It has a replacement cost of $55 per unit and a normal profit of $4 per unit. If the company uses the retail method to value its inventory, how much should be reported on the balance sheet for these items?
A company has two pieces of Inventory, A and B. Inventory A cost the company $40 per unit and can now be sold for $60 per unit after incurring $15 in selling expenses per unit. It has a replacement cost of $35 per unit and a normal profit of $4 per unit. Inventory B cost the company $52 per unit and can now be sold for $63 per unit after incurring $15 in selling expenses per unit. It has a replacement cost of $55 per unit and a normal profit of $4 per unit. If the company uses the retail method to value its inventory, how much should be reported on the balance sheet for these items?
Tap to reveal answer
The inventory should be reported at the lower of cost or market, subject to a ceiling and floor. Replacement cost is used unless it is higher than the ceiling or lower than the floor. For Item A, the ceiling value is $45 ($60 selling price - $15 selling expenses). The floor value is $41 ($45 - $4 profit margin). The historical cost of Item A is lower and thus is used in inventory valuation. For Item B, the ceiling value is $48 (sales price of $63 - $15 selling expenses). The floor value is $44 ($48 - $4 profit margin). Replacement cost is used because it isn't above the ceiling for Item B.
The inventory should be reported at the lower of cost or market, subject to a ceiling and floor. Replacement cost is used unless it is higher than the ceiling or lower than the floor. For Item A, the ceiling value is $45 ($60 selling price - $15 selling expenses). The floor value is $41 ($45 - $4 profit margin). The historical cost of Item A is lower and thus is used in inventory valuation. For Item B, the ceiling value is $48 (sales price of $63 - $15 selling expenses). The floor value is $44 ($48 - $4 profit margin). Replacement cost is used because it isn't above the ceiling for Item B.
← Didn't Know|Knew It →
A company counts its inventory and arrives at a total of $167,000. The company fears that some merchandise has been stolen and seeks to estimate the amount of the loss. Sales for the period were $600,000. Gross profit is set by the company at a standard 40% of the sales price. According to ledger balances, inventory on the first day of the year was $150,000 and purchases of $390,000 were made during the period. How much theft has occurred?
A company counts its inventory and arrives at a total of $167,000. The company fears that some merchandise has been stolen and seeks to estimate the amount of the loss. Sales for the period were $600,000. Gross profit is set by the company at a standard 40% of the sales price. According to ledger balances, inventory on the first day of the year was $150,000 and purchases of $390,000 were made during the period. How much theft has occurred?
Tap to reveal answer
If gross profit is 40%, COGS is 60%, meaning that the sales of $600K had a cost of $360K ($600K x 60%). Ending inventory should be $150K beginning inventory plus purchases of $390K minus sales of $360K, for correct ending inventory of $180K. The inventory count only found $167K, for a difference of $13K.
If gross profit is 40%, COGS is 60%, meaning that the sales of $600K had a cost of $360K ($600K x 60%). Ending inventory should be $150K beginning inventory plus purchases of $390K minus sales of $360K, for correct ending inventory of $180K. The inventory count only found $167K, for a difference of $13K.
← Didn't Know|Knew It →
A company buys 100 units of inventory for $20 each. Later, 90 of these units are sold on credit for $50 each. The company then buys an additional 40 units but the cost has risen to $22 each. The company sells a final 30 units for $55 each. The company uses a moving average system for calculating its cost of goods sold. What should be reported as the cost of the 120 units sold during the year?
A company buys 100 units of inventory for $20 each. Later, 90 of these units are sold on credit for $50 each. The company then buys an additional 40 units but the cost has risen to $22 each. The company sells a final 30 units for $55 each. The company uses a moving average system for calculating its cost of goods sold. What should be reported as the cost of the 120 units sold during the year?
Tap to reveal answer
The moving average cost of inventory is calculated by recalculating the average cost each time a sale is made. When 90 units are sold, the average cost is $20 per unit. After the second purchase, the remaining units have a total cost of $1,080 (10 x $20 + 40 x $22) and the average cost is $21.6 ($1,080/50 units). The total cost of the sold units is $21.6 x 30 + $20 x 90.
The moving average cost of inventory is calculated by recalculating the average cost each time a sale is made. When 90 units are sold, the average cost is $20 per unit. After the second purchase, the remaining units have a total cost of $1,080 (10 x $20 + 40 x $22) and the average cost is $21.6 ($1,080/50 units). The total cost of the sold units is $21.6 x 30 + $20 x 90.
← Didn't Know|Knew It →
Of the following, which is not a legitimate method of inventory costing?
Of the following, which is not a legitimate method of inventory costing?
Tap to reveal answer
There is no such concept of a Discounted Method in inventory valuation.
There is no such concept of a Discounted Method in inventory valuation.
← Didn't Know|Knew It →
A company has two pieces of Inventory, A and B. Inventory A cost the company $40 per unit and can now be sold for $60 per unit after incurring $15 in selling expenses per unit. It has a replacement cost of $35 per unit and a normal profit of $4 per unit. Inventory B cost the company $52 per unit and can now be sold for $63 per unit after incurring $15 in selling expenses per unit. It has a replacement cost of $55 per unit and a normal profit of $4 per unit. If the company uses the retail method to value its inventory, how much should be reported on the balance sheet for these items?
A company has two pieces of Inventory, A and B. Inventory A cost the company $40 per unit and can now be sold for $60 per unit after incurring $15 in selling expenses per unit. It has a replacement cost of $35 per unit and a normal profit of $4 per unit. Inventory B cost the company $52 per unit and can now be sold for $63 per unit after incurring $15 in selling expenses per unit. It has a replacement cost of $55 per unit and a normal profit of $4 per unit. If the company uses the retail method to value its inventory, how much should be reported on the balance sheet for these items?
Tap to reveal answer
The inventory should be reported at the lower of cost or market, subject to a ceiling and floor. Replacement cost is used unless it is higher than the ceiling or lower than the floor. For Item A, the ceiling value is $45 ($60 selling price - $15 selling expenses). The floor value is $41 ($45 - $4 profit margin). The historical cost of Item A is lower and thus is used in inventory valuation. For Item B, the ceiling value is $48 (sales price of $63 - $15 selling expenses). The floor value is $44 ($48 - $4 profit margin). Replacement cost is used because it isn't above the ceiling for Item B.
The inventory should be reported at the lower of cost or market, subject to a ceiling and floor. Replacement cost is used unless it is higher than the ceiling or lower than the floor. For Item A, the ceiling value is $45 ($60 selling price - $15 selling expenses). The floor value is $41 ($45 - $4 profit margin). The historical cost of Item A is lower and thus is used in inventory valuation. For Item B, the ceiling value is $48 (sales price of $63 - $15 selling expenses). The floor value is $44 ($48 - $4 profit margin). Replacement cost is used because it isn't above the ceiling for Item B.
← Didn't Know|Knew It →
A company counts its inventory and arrives at a total of $167,000. The company fears that some merchandise has been stolen and seeks to estimate the amount of the loss. Sales for the period were $600,000. Gross profit is set by the company at a standard 40% of the sales price. According to ledger balances, inventory on the first day of the year was $150,000 and purchases of $390,000 were made during the period. How much theft has occurred?
A company counts its inventory and arrives at a total of $167,000. The company fears that some merchandise has been stolen and seeks to estimate the amount of the loss. Sales for the period were $600,000. Gross profit is set by the company at a standard 40% of the sales price. According to ledger balances, inventory on the first day of the year was $150,000 and purchases of $390,000 were made during the period. How much theft has occurred?
Tap to reveal answer
If gross profit is 40%, COGS is 60%, meaning that the sales of $600K had a cost of $360K ($600K x 60%). Ending inventory should be $150K beginning inventory plus purchases of $390K minus sales of $360K, for correct ending inventory of $180K. The inventory count only found $167K, for a difference of $13K.
If gross profit is 40%, COGS is 60%, meaning that the sales of $600K had a cost of $360K ($600K x 60%). Ending inventory should be $150K beginning inventory plus purchases of $390K minus sales of $360K, for correct ending inventory of $180K. The inventory count only found $167K, for a difference of $13K.
← Didn't Know|Knew It →
A company buys 100 units of inventory for $20 each. Later, 90 of these units are sold on credit for $50 each. The company then buys an additional 40 units but the cost has risen to $22 each. The company sells a final 30 units for $55 each. The company uses a moving average system for calculating its cost of goods sold. What should be reported as the cost of the 120 units sold during the year?
A company buys 100 units of inventory for $20 each. Later, 90 of these units are sold on credit for $50 each. The company then buys an additional 40 units but the cost has risen to $22 each. The company sells a final 30 units for $55 each. The company uses a moving average system for calculating its cost of goods sold. What should be reported as the cost of the 120 units sold during the year?
Tap to reveal answer
The moving average cost of inventory is calculated by recalculating the average cost each time a sale is made. When 90 units are sold, the average cost is $20 per unit. After the second purchase, the remaining units have a total cost of $1,080 (10 x $20 + 40 x $22) and the average cost is $21.6 ($1,080/50 units). The total cost of the sold units is $21.6 x 30 + $20 x 90.
The moving average cost of inventory is calculated by recalculating the average cost each time a sale is made. When 90 units are sold, the average cost is $20 per unit. After the second purchase, the remaining units have a total cost of $1,080 (10 x $20 + 40 x $22) and the average cost is $21.6 ($1,080/50 units). The total cost of the sold units is $21.6 x 30 + $20 x 90.
← Didn't Know|Knew It →
Of the following, which is not a legitimate method of inventory costing?
Of the following, which is not a legitimate method of inventory costing?
Tap to reveal answer
There is no such concept of a Discounted Method in inventory valuation.
There is no such concept of a Discounted Method in inventory valuation.
← Didn't Know|Knew It →
A company has two pieces of Inventory, A and B. Inventory A cost the company $40 per unit and can now be sold for $60 per unit after incurring $15 in selling expenses per unit. It has a replacement cost of $35 per unit and a normal profit of $4 per unit. Inventory B cost the company $52 per unit and can now be sold for $63 per unit after incurring $15 in selling expenses per unit. It has a replacement cost of $55 per unit and a normal profit of $4 per unit. If the company uses the retail method to value its inventory, how much should be reported on the balance sheet for these items?
A company has two pieces of Inventory, A and B. Inventory A cost the company $40 per unit and can now be sold for $60 per unit after incurring $15 in selling expenses per unit. It has a replacement cost of $35 per unit and a normal profit of $4 per unit. Inventory B cost the company $52 per unit and can now be sold for $63 per unit after incurring $15 in selling expenses per unit. It has a replacement cost of $55 per unit and a normal profit of $4 per unit. If the company uses the retail method to value its inventory, how much should be reported on the balance sheet for these items?
Tap to reveal answer
The inventory should be reported at the lower of cost or market, subject to a ceiling and floor. Replacement cost is used unless it is higher than the ceiling or lower than the floor. For Item A, the ceiling value is $45 ($60 selling price - $15 selling expenses). The floor value is $41 ($45 - $4 profit margin). The historical cost of Item A is lower and thus is used in inventory valuation. For Item B, the ceiling value is $48 (sales price of $63 - $15 selling expenses). The floor value is $44 ($48 - $4 profit margin). Replacement cost is used because it isn't above the ceiling for Item B.
The inventory should be reported at the lower of cost or market, subject to a ceiling and floor. Replacement cost is used unless it is higher than the ceiling or lower than the floor. For Item A, the ceiling value is $45 ($60 selling price - $15 selling expenses). The floor value is $41 ($45 - $4 profit margin). The historical cost of Item A is lower and thus is used in inventory valuation. For Item B, the ceiling value is $48 (sales price of $63 - $15 selling expenses). The floor value is $44 ($48 - $4 profit margin). Replacement cost is used because it isn't above the ceiling for Item B.
← Didn't Know|Knew It →
A company counts its inventory and arrives at a total of $167,000. The company fears that some merchandise has been stolen and seeks to estimate the amount of the loss. Sales for the period were $600,000. Gross profit is set by the company at a standard 40% of the sales price. According to ledger balances, inventory on the first day of the year was $150,000 and purchases of $390,000 were made during the period. How much theft has occurred?
A company counts its inventory and arrives at a total of $167,000. The company fears that some merchandise has been stolen and seeks to estimate the amount of the loss. Sales for the period were $600,000. Gross profit is set by the company at a standard 40% of the sales price. According to ledger balances, inventory on the first day of the year was $150,000 and purchases of $390,000 were made during the period. How much theft has occurred?
Tap to reveal answer
If gross profit is 40%, COGS is 60%, meaning that the sales of $600K had a cost of $360K ($600K x 60%). Ending inventory should be $150K beginning inventory plus purchases of $390K minus sales of $360K, for correct ending inventory of $180K. The inventory count only found $167K, for a difference of $13K.
If gross profit is 40%, COGS is 60%, meaning that the sales of $600K had a cost of $360K ($600K x 60%). Ending inventory should be $150K beginning inventory plus purchases of $390K minus sales of $360K, for correct ending inventory of $180K. The inventory count only found $167K, for a difference of $13K.
← Didn't Know|Knew It →
A company buys 100 units of inventory for $20 each. Later, 90 of these units are sold on credit for $50 each. The company then buys an additional 40 units but the cost has risen to $22 each. The company sells a final 30 units for $55 each. The company uses a moving average system for calculating its cost of goods sold. What should be reported as the cost of the 120 units sold during the year?
A company buys 100 units of inventory for $20 each. Later, 90 of these units are sold on credit for $50 each. The company then buys an additional 40 units but the cost has risen to $22 each. The company sells a final 30 units for $55 each. The company uses a moving average system for calculating its cost of goods sold. What should be reported as the cost of the 120 units sold during the year?
Tap to reveal answer
The moving average cost of inventory is calculated by recalculating the average cost each time a sale is made. When 90 units are sold, the average cost is $20 per unit. After the second purchase, the remaining units have a total cost of $1,080 (10 x $20 + 40 x $22) and the average cost is $21.6 ($1,080/50 units). The total cost of the sold units is $21.6 x 30 + $20 x 90.
The moving average cost of inventory is calculated by recalculating the average cost each time a sale is made. When 90 units are sold, the average cost is $20 per unit. After the second purchase, the remaining units have a total cost of $1,080 (10 x $20 + 40 x $22) and the average cost is $21.6 ($1,080/50 units). The total cost of the sold units is $21.6 x 30 + $20 x 90.
← Didn't Know|Knew It →
Of the following, which is not a legitimate method of inventory costing?
Of the following, which is not a legitimate method of inventory costing?
Tap to reveal answer
There is no such concept of a Discounted Method in inventory valuation.
There is no such concept of a Discounted Method in inventory valuation.
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