Module 8 - Inventory Costing and Control

Flashcard 1: Question: What is the purpose of inventory costing methods? Answers:

  1. To estimate future demand.

  2. To determine selling prices for goods.

  3. To assign costs to inventory and calculate the cost of goods sold (COGS).

  4. To identify inventory shrinkage.

  5. To manage physical inventory counts.

Flashcard 2: Question: When is specific identification used in inventory costing? Answers:

  1. For low-value, high-volume items.

  2. For items that are frequently purchased in bulk.

  3. For unique, high-value items like cars or jewelry.

  4. For inventory that is quickly consumed.

  5. For all inventory regardless of value.

Flashcard 3: Question: What is the average cost method best suited for? Answers:

  1. Situations where inventory has identical costs.

  2. Situations where inventory prices vary, and items cannot be individually tracked.

  3. Situations requiring FIFO.

  4. Inventory with unique serial numbers.

  5. Fast-moving perishable goods.

Flashcard 4: Question: How does the FIFO method determine the cost of inventory sold? Answers:

  1. By averaging the cost of all inventory items.

  2. By using the most recent inventory purchased.

  3. By selling the oldest inventory items first.

  4. By assigning a fixed cost to each unit.

  5. By random selection of inventory costs.

Flashcard 5: Question: What type of business might use the FIFO method? Answers:

  1. Jewelry stores.

  2. Flower shops or bakeries.

  3. Auto manufacturers.

  4. Tech companies with serialized products.

  5. Retailers with fixed pricing.

Flashcard 6: Question: What is the first step in calculating COGS using FIFO? Answers:

  1. Listing all inventory purchases randomly.

  2. Calculating the average cost of all inventory.

  3. Listing beginning inventory and purchases in chronological order.

  4. Subtracting ending inventory from total purchases.

  5. Adjusting inventory for shrinkage.

Flashcard 7: Question: How can you check the accuracy of FIFO calculations? Answers:

  1. Subtract purchases from ending inventory.

  2. Add COGS to total inventory purchased.

  3. Add beginning inventory and purchases, then compare with ending inventory plus COGS.

  4. Divide COGS by total sales revenue.

  5. Ensure total inventory costs are constant.

Flashcard 8: Question: What is "shrinkage" in inventory management? Answers:

  1. An increase in inventory value.

  2. Loss of inventory due to theft, damage, or obsolescence.

  3. Inventory returns from customers.

  4. Unrecorded sales of inventory.

  5. Items held in transit.

Flashcard 9: Question: What adjustment is made for inventory shrinkage in accounting records? Answers:

  1. Increase inventory to account for losses.

  2. Decrease inventory and increase COGS by the value of the shrinkage.

  3. Adjust sales revenue to reflect shrinkage.

  4. Add shrinkage to total purchases.

  5. Ignore unless shrinkage is significant.

Flashcard 10: Question: How is in-transit inventory ownership determined? Answers:

  1. Based on the selling price of goods.

  2. By the shipping terms (FOB Shipping Point or Destination).

  3. By the method of inventory costing used.

  4. Based on inventory shrinkage.

  5. By the total value of goods in transit.

Flashcard 11: Question: What triggers a reduction in the value of inventory? Answers:

  1. An increase in market demand.

  2. When the selling price drops below the purchase cost.

  3. When inventory becomes obsolete.

  4. A sudden increase in COGS.

  5. An increase in inventory purchases.

Flashcard 12: Question: How is a reduction in inventory value recorded? Answers:

  1. Increase inventory and adjust sales revenue.

  2. Adjust inventory to match shrinkage records.

  3. Adjust inventory to reflect the lower selling price and increase inventory losses expense.

  4. Write off the entire inventory.

  5. Ignore unless inventory is sold.

Flashcard 13: Question: What happens to unit costs in inventory records when the selling price drops? Answers:

  1. Unit costs remain the same.

  2. Unit costs are adjusted to match the new selling price.

  3. Unit costs are averaged over all inventory.

  4. Unit costs are increased to match original prices.

  5. Unit costs are written off.

Flashcard 14: Question: What is included in inventory shrinkage adjustments? Answers:

  1. Only theft losses.

  2. Damage and theft only.

  3. The quantity, unit cost, and total cost of lost or damaged inventory.

  4. Customer returns and obsolete goods.

  5. Only physical inventory counts.

Flashcard 15: Question: How does FIFO impact ending inventory during rising prices? Answers:

  1. Decreases ending inventory value.

  2. Increases ending inventory value.

  3. Has no effect on inventory value.

  4. Reduces COGS.

Matches inventory to average cost.