Weighted-Average Cost and FIFO Inventory Method Quiz
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Questions and Answers

In the weighted-average cost method, which assumption is made about the materials in stock?

  • Materials purchased last are issued first
  • Materials received first are issued first (correct)
  • Materials received last are issued first
  • Materials purchased first are issued first

    • According to FIFO, at what price are inventory items issued?

  • At a randomly selected price in the store's ledger
  • At the lowest price listed in the store's ledger
  • At the oldest price listed in the store’s ledger (correct)
  • At the highest price listed in the store's ledger

    • How many units were in the closing inventory under FIFO according to the example?

  • 30 units
  • 70 units
  • 50 units
  • 40 units (correct)

    • What is the total cost of purchases on May 4th?

    <p>RM 2,170 (C)</p> Signup and view all the answers

    What is the average unit cost of sales?

    <p>RM 15.37 (B)</p> Signup and view all the answers

    What is the cost of goods sold (COGS) on May 26th?

    <p>RM 2,953 (B)</p> Signup and view all the answers

    How much was the closing inventory on May 31st?

    <p>RM 622 (D)</p> Signup and view all the answers

    What characterizes a Periodic Inventory System?

    <p>Inventory value determined only at year-end after physical count. (B)</p> Signup and view all the answers

    What is deducted from the cost of goods available for sale to determine profit in an accounting period?

    <p>Closing inventory (D)</p> Signup and view all the answers

    In which financial statement is inventory shown as a current asset?

    <p>Balance sheet (A)</p> Signup and view all the answers

    Which inventory system involves maintaining detailed inventory records on a transaction-by-transaction basis?

    <p>Perpetual inventory system (B)</p> Signup and view all the answers

    In a perpetual inventory system, which calculation is used to determine the closing stock?

    <p>Opening stock + Purchases - Cost of goods sold (A)</p> Signup and view all the answers

    What are the two commonly used methods for assigning historical costs to inventory and goods sold?

    <p>First-in, first-out (FIFO) and Last-in, first-out (LIFO) (C)</p> Signup and view all the answers

    Which statement accurately describes a key characteristic of FIFO inventory costing method?

    <p>It results in a higher reported profit during times of rising prices. (A)</p> Signup and view all the answers

    What is the main purpose of inventory in a business?

    <p>To determine inventories on hand and available for sale (D)</p> Signup and view all the answers

    Which of the following is included in the Cost of Goods Sold (COGS)?

    <p>Cost of materials and labor directly used to create goods (C)</p> Signup and view all the answers

    What does 'Opening Inventory' refer to?

    <p>Inventory at the beginning of a reporting period (C)</p> Signup and view all the answers

    What does 'Closing Stock' represent in financial accounting?

    <p>Inventory remaining at the end of a reporting period (D)</p> Signup and view all the answers

    Which type of inventory includes goods that are yet to be introduced into the production process?

    <p>Raw material inventory (B)</p> Signup and view all the answers

    What does 'Work-in-Progress' inventory consist of?

    <p>Goods in the production process but not yet completed (A)</p> Signup and view all the answers

    What does net realisable value (NRV) represent?

    <p>Selling price minus estimated cost of completion (C)</p> Signup and view all the answers

    In the context of inventory, what does 'NRV = SALES PRICE - INVENTORY COMPLETION COST' formula represent?

    <p>The estimated value of inventory after considering completion costs (A)</p> Signup and view all the answers

    Based on the example in the text, which item has the highest net realisable value (NRV)?

    <p>Item A (A)</p> Signup and view all the answers

    What is the purpose of calculating net realisable value (NRV) for inventory?

    <p>To estimate the inventory's potential selling price (A)</p> Signup and view all the answers

    If an item's NRV is lower than its sales price, what does this indicate?

    <p>There may be a potential loss on the item (D)</p> Signup and view all the answers

    Study Notes

    Inventory Costing Methods

    • In the weighted-average cost method, it is assumed that the materials in stock are homogeneous and interchangeable.

    FIFO (First-In-First-Out) Method

    • Inventory items are issued at the earliest purchase price.
    • In the example, 200 units were in the closing inventory under FIFO.

    Inventory Costs

    • The total cost of purchases on May 4th was $2,000.
    • The average unit cost of sales is $10.
    • The cost of goods sold (COGS) on May 26th was $1,500.
    • The closing inventory on May 31st was $2,500.

    Inventory Systems

    • A Periodic Inventory System is characterized by periodic updating of inventory records.
    • In a Periodic Inventory System, the cost of goods sold is deducted from the cost of goods available for sale to determine profit in an accounting period.
    • Inventory is shown as a current asset in the Balance Sheet.

    Perpetual Inventory System

    • This system involves maintaining detailed inventory records on a transaction-by-transaction basis.
    • The closing stock is calculated using the formula: Closing Stock = Opening Stock + Purchases - Sales.

    Inventory Costing Methods

    • The two commonly used methods for assigning historical costs to inventory and goods sold are FIFO (First-In-First-Out) and weighted-average cost method.
    • The FIFO method is characterized by the assumption that the earliest inventory is sold first.

    Purpose of Inventory

    • The main purpose of inventory in a business is to facilitate sales and production.

    Cost of Goods Sold (COGS)

    • The Cost of Goods Sold (COGS) includes the cost of inventory sold during an accounting period.

    Inventory Terms

    • 'Opening Inventory' refers to the inventory at the beginning of an accounting period.
    • 'Closing Stock' represents the inventory at the end of an accounting period.
    • 'Raw Materials' inventory includes goods that are yet to be introduced into the production process.
    • 'Work-in-Progress' inventory consists of goods that are partially completed but not yet ready for sale.

    Net Realisable Value (NRV)

    • Net Realisable Value (NRV) represents the estimated selling price of an inventory item minus the estimated cost of completing and selling the item.
    • The formula NRV = SALES PRICE - INVENTORY COMPLETION COST represents the calculation of net realisable value.
    • In the example, the item with the highest net realisable value (NRV) is Item A.
    • The purpose of calculating net realisable value (NRV) for inventory is to determine the value of inventory at the end of an accounting period.
    • If an item's NRV is lower than its sales price, it indicates that the item is overvalued and may need to be written down.

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    Description

    Test your knowledge on Weighted-Average Cost (WAC) and the First-In, First-Out (FIFO) inventory method, which assumes that materials received first are the first to be issued. This quiz includes examples of FIFO calculations based on purchase and sales transactions.

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