Practice Exercise #5-2

Inventory

These are assets held for sale in the ordinary course of business, in the process of production for such sale, and in the form of materials or supplies to be consumed in the production or in rendering of services.

Consignment

It is a trading arrangement in which a seller sends goods to a reseller who pays the seller only when the goods are sold.

Cost of sales

It refers to the goods available for sale during the period less any unsold goods on hand at the end of the period.

Freight out

It is the freight cost incurred by the seller.

Absorption costing

It is a costing method in which all manufacturing costs— variable and fixed, direct and indirect-incurred in production are included in the cost of inventory.

Moving average method

It is a cost flow assumption that requires the computation of a new average unit cost after each purchase.

Variable costing

It is a costing method that varies directly with the production volume and is charged to products as manufacturing takes place.

Freight In

It is the freight cost incurred by the buyer.

Net realizable value

It is the estimated selling price less estimated cost of completion and estimated cost necessary to make the sale

Finished goods

It refers to the completed products that are ready for sale.