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Questions and Answers
How is the weighted average unit cost calculated in the average cost method?
How is the weighted average unit cost calculated in the average cost method?
In the FIFO perpetual inventory schedule, what was the total cost for the purchases made on April 15?
In the FIFO perpetual inventory schedule, what was the total cost for the purchases made on April 15?
What is the total cost for the August 24 purchase in the average cost perpetual inventory schedule?
What is the total cost for the August 24 purchase in the average cost perpetual inventory schedule?
Which formula should be used to check the inventory balance calculation?
Which formula should be used to check the inventory balance calculation?
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What was the balance of total units as of June 1 in the average cost perpetual inventory schedule?
What was the balance of total units as of June 1 in the average cost perpetual inventory schedule?
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Which of the following purchases had the highest weighted average unit cost in the average cost schedule?
Which of the following purchases had the highest weighted average unit cost in the average cost schedule?
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What is the correct total cost for the scheduled purchase on November 27 in the FIFO inventory schedule?
What is the correct total cost for the scheduled purchase on November 27 in the FIFO inventory schedule?
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In the average cost method, what was the cost of goods sold for May 1?
In the average cost method, what was the cost of goods sold for May 1?
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Which of the following best represents the relationship expressed in the inventory check?
Which of the following best represents the relationship expressed in the inventory check?
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Which entry in the FIFO perpetual inventory schedule records the lowest cost of goods sold?
Which entry in the FIFO perpetual inventory schedule records the lowest cost of goods sold?
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Which inventory cost determination method must be used for items that are not interchangeable?
Which inventory cost determination method must be used for items that are not interchangeable?
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Under the FIFO method, how is the cost of goods sold determined?
Under the FIFO method, how is the cost of goods sold determined?
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Which statement accurately describes the LIFO method?
Which statement accurately describes the LIFO method?
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What characterizes the Average Cost method in inventory valuation?
What characterizes the Average Cost method in inventory valuation?
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In an example with total inventory of $9,200 and COGS of $6,200, what is the ending inventory?
In an example with total inventory of $9,200 and COGS of $6,200, what is the ending inventory?
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Which cost flow assumption would most likely reflect the actual physical flow of merchandise?
Which cost flow assumption would most likely reflect the actual physical flow of merchandise?
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What is a primary disadvantage of using Specific Identification in inventory management?
What is a primary disadvantage of using Specific Identification in inventory management?
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When utilizing the Average Cost method, what happens to the weighted average cost per unit?
When utilizing the Average Cost method, what happens to the weighted average cost per unit?
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Which example best illustrates the use of Specific Identification?
Which example best illustrates the use of Specific Identification?
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What is a feature of LIFO that makes it less favorable under certain conditions?
What is a feature of LIFO that makes it less favorable under certain conditions?
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Study Notes
Inventory Cost Determination Methods
- Specific Identification: This method tracks the actual physical flow of goods. Each item is marked, tagged, or coded with its specific unit cost. It's best for items not interchangeable or with unique costs, such as jewelry or custom furniture.
- Cost Flow Assumptions: Methods that assume a flow of costs instead of tracking the physical flow of goods. These are often used because specific identification is impractical.
- First-In, First-Out (FIFO): Assumes the earliest goods purchased are the first ones sold. Often reflects the actual physical flow of merchandise. Under FIFO, the costs of the earliest goods purchased are recognized first, and the costs of the most recently purchased goods are recognized as ending inventory.
- Last-In, First-Out (LIFO): Assumes the latest goods purchased are the first ones sold. This method of costing is rarely used in Canada.
- Average Cost: Assumes that goods available for sale are homogeneous. The allocation of the cost of goods is based on the weighted average unit cost, which is calculated by dividing the cost of goods available for sale by the total units available for sale. The weighted average cost per unit is a moving average that almost always changes when the company purchases more units, but doesn't change when the company sells units.
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Description
Explore the various methods of inventory cost determination including Specific Identification, FIFO, LIFO, and Average Cost. This quiz will assess your understanding of how each method impacts financial reporting and inventory management. Perfect for finance students and professionals seeking to solidify their knowledge in cost methods.
