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Exam 6: Inventory Costing

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Question 71

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Automobiles are a good example of a type of inventory where the FIFO cost formula is used.

A) True
B) False

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Question 72

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All of the following are examples of strong internal control when counting inventory EXCEPT

A) prenumbered inventory tags should be used.
B) the inventory clerk should control all of the inventory count sheets.
C) the counting should be done by employees who are not responsible for either custody of the inventory or keeping inventory records.
D) there should be a second count by another employee or auditor.

E) All of the above
F) A) and C)

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Question 73

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The following information is available for Schulsky's Deli for three recent years: The ending inventory at December 31, 2012 was $36,000. Instructions Calculate the inventory turnover, the days sales in inventory, and gross profit margin for Schulsky's Deli for each of the three years, and comment on any trends.

The retail method estimates the cost of ending inventory by applying the gross profit margin to net sales.

Singh Computer Shop begins operations on June 1 and uses a perpetual inventory system. During June, the company had the following purchases and sales for its Model 10 Fastback Computer System: -Using the average cost formula, the amount allocated to the ending inventory on June 30 is

The inventory of Schooler Company was destroyed by fire on April 1. From an examination of the accounting records, the following data for the first three months of the year are obtained: Instructions Determine the merchandise lost by fire, assuming a beginning inventory of $60,000 and a gross profit margin of 40% on net sales.

Inventory errors can result in errors in determining all of the following, EXCEPT

Hixenbaugh Company uses the periodic inventory system to account for inventories. Information related to Hixenbaugh Company's inventory at October 31 is given below: On October 31 there were 500 units on hand. Instructions a. Show calculations to value the ending inventory using FIFO. b. Show calculations to value the ending inventory using average.

Fyodorov Company, using a periodic inventory system, has just completed a physical inventory count at year end, December 31, 2015. Only the items on the shelves, in storage, and in the receiving area were counted. The inventory amounted to $60,000. During the audit, the independent CGA discovered the following additional information: 1. There were goods in transit on December 31, 2015, from a supplier with terms FOB destination, costing $8,000. Because the goods had not arrived, they were excluded from the physical inventory count. 2. On December 27, 2015, a regular customer purchased goods for cash amounting to $1,000 and left them for pickup on January 4, 2016. Fyodorov Company had paid $500 for the goods and, because they were on hand, included them in the physical inventory count. 3. Fyodorov Company, on the date of the inventory count, received notice from a supplier that goods ordered earlier, at a cost of $4,000, had been delivered to the transportation company on December 28, 2015; the terms were FOB shipping point. Because the shipment had not arrived on December 31, 2015, it was excluded from the physical inventory. 4. On December 31, 2015, there were goods in transit to customers, with terms FOB shipping point, amounting to $800 (expected delivery on January 8, 2016). Because the goods had been shipped, they were excluded from the physical inventory count. 5. On December 31, 2015, Fyodorov Company shipped $2,500 worth of goods to a customer, FOB destination, in Thunder Bay. The goods arrived in Thunder Bay on January 5, 2016. Because the goods were not on hand, they were not included in the physical inventory count. 6. Fyodorov Company, as the consignee, had goods on consignment that cost $8,000. Because these goods were on hand as of December 31, 2015, they were included in the physical inventory count. Instructions Analyze the above information for Fyodorov Company and calculate a corrected amount for the ending inventory. Explain the basis for your treatment of each item.

The counting of the inventory should be done by employees who are NOT responsible for either custody of the inventory or keeping inventory records.

North Bay Company suffered a loss of its inventory on March 28 due to a fire in its warehouse. As a basis for filing a claim with its insurance company, North Bay Company developed the following information: The company has experienced an average gross profit margin of 30% in the past and this margin appears to be appropriate in the current period. Instructions Using the gross profit method, prepare an estimate of the cost of the inventory destroyed by fire on March 28. Show all calculations in good form.

Under the periodic system of inventory, the weighted average unit cost is calculated by dividing the total units available for sale by the cost of goods available for sale.

Goods in transit should be ignored when performing a physical inventory count.

Singh Computer Shop begins operations on June 1 and uses a perpetual inventory system. During June, the company had the following purchases and sales for its Model 10 Fastback Computer System: -Using the FIFO cost formula, the amount allocated to cost of goods sold for June is

In a periodic system inventory quantities are continuously updated.

When using the perpetual method of accounting and the average cost formula, the average cost per unit will change every time a unit of inventory is purchased.

In a periodic inventory system you must

A company has goods available for sale during a period at cost of $60,000 and at retail of $90,000. If sales during the period amounted to $75,000, an estimate of the ending inventory at cost at the end of the period under the retail method is

Independent internal verification of the physical inventory process occurs when

Two companies report the same cost of goods available for sale but each employs a different cost formula. If the price of goods has increased during the period, then the company using