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Exam 17: Merchandise Inventory

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Question 31

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A matching of the most recent costs to revenue results from the use of

A) the LIFO method.
B) the FIFO method.
C) the average cost method.
D) the lower of cost or market method.

E) B) and D)
F) B) and C)

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Question 32

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Under the retail inventory method,if the gross profit ratio is 40% and ending inventory at retail is $55,000,then estimated ending inventory is $33,000.

A) True
B) False

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Question 33

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Under the retail inventory method,if the gross profit ratio is 40% and ending inventory at retail is $45,000,then estimated ending inventory is $18,000.

A merchant who deals in one-of-a-kind items with large unit costs may account for inventory by the _________________________ method.

A business is required to apply the lower of cost or market rule by comparing and reporting inventory values on an item-by-item basis.

Inventory costing methods are influenced by industry practice and the types of merchandise available for sale.

The difference between the cost and the initial retail price of merchandise is

The average cost method of inventory valuation will always result in the lowest reported net income.

Average costing is advantageous to use when a company's inventory is composed of many similar items that are not subject to significant price and style changes.

If a business builds and sells yachts,the logical method for computing the cost of goods sold is

Under the gross profit method,the cost of the ending inventory is determined by applying the gross profit ratio to net sales and then subtracting the gross profit calculated from the cost of goods available for sale.

The weighted average cost of an inventory item is calculated by

The firm had a beginning inventory of 50 units with a unit cost of $10.Purchases during the year were as follows: March-50 units with a unit cost of $12;July-60 units with a unit cost of $15.If the average cost method is used,the value of the ending inventory of 45 units is

The retail method is a means of estimating

When inventory is valued at the lower of cost or market,the accountant is applying the principle or convention called ___________________.

Gross profit ratio is determined by dividing Net Sales by Gross Profit.

The steps and proper order for estimating EI cost using the gross profit method are as follows:

The gross profit method of determining ending inventory cost

The gross profit method of estimating inventory enables managers to prepare budgets and proforma (forecast or anticipated)financial statements.

Under the gross profit method of estimating inventory,the ending inventory is determined by subtracting the estimated cost of goods sold from the cost of goods available for sale.