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Inventory Management

Inventory Management MCQs

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A physical inventory count showed an entity had inventory costing $1,000,000 on hand at December 31, Year 1. Excluded from this amount were the follow...

$1,000,000
$1,082,000
$1,122,000
$1,204,000

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An entity had the following account balances in the pre-closing trial balance: Opening inventory...................... $100,000 Closing inventory .....

$340,000
$346,000
$370,000
$376,000

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The following selected data from statements of financial position on December 31, Year 1, and December 31, Year 2, are presented below: ................

$147,000
$160,000
$167,000
$180,000

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An entity with a December 31 year end purchased $2,000 of inventory on account. The seller was responsible for delivery to the shipping point, with f...

$0 $0
$2,050 $0
$0 $50
$2,000 $50

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A retail entity maintains a markup of 25% based on cost. The entity has the following information for the current year: Purchases of merchandise.......

$40,000
$85,000
$110,000
$265,000

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An entity had the following opening and closing inventory balances during the current year: .......................................1/1 ........12/31 ...

Profit is overstated
Cost of goods sold is overstated.
Working capital is overstated.
Cost of goods produced is understated.

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The following information is available for an entity for the quarter ended March 31, of the current year: Merchandise inventory, as of January 1 of...

$20,000
$40,000
$60,000
$180,000

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An internal auditor performs an analytical procedure to compare the gross margins of various divisional operations with those of other divisions and ...

An increase in the number of competitors selling similar products.
A decrease in the number of suppliers of the material used in manufacturing the product.
An overstatement of year-end inventory.
An understatement of year-end accounts receivable.

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If certain goods owned by an entity were not recorded as a purchase and were not counted in ending inventory, in error, then

Cost of goods sold for the period will be understated.
Cost of goods sold for the period will be overstated.
Net income for the period will be understated.
There will be no effect on cost of goods sold or profit for the period.

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What is the cost of ending inventory given the following factors? Beginning inventory............ $ 5,000 Total production costs ............60,00...

$5,000
$10,000
$45,000
$50,000

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Holly Companyâ€™s inventory is overstated at December 31 of this year. The result will be

Understated income this year.
Understated retained earnings this year.
Understated retained earnings next year.
Understated income next year.

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Which one of the following errors will result in the overstatement of net income?

Overstatement of beginning inventory
Overstatement of ending inventory
Overstatement of goodwill amortization
Overstatement of bad debt expense.

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The following information applies to the income statement of Addison Company: Gross sales....................... $1,000,000 Net sales.................

$550,000
$560,000
$740,000
$800,000

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An entity started in Year 1 with 200 scented candles on hand at a cost of $3.50 each. These candles sell for $7.00 each. The following schedule repres...

$2,755
$2,805
$2,854
$2,920

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The cost of materials has risen steadily over the year. Which of the following methods of estimating the ending balance of the materials inventory ac...

Last-in, first-out (LIFO).
First-in, first-out (FIFO).
Weighted average.
Specific identification

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Illustrated below is a perpetual inventory card for the current year. Date......... Units Purchased... Units Sold.... Units .........................

$3,050
$3,150
$3,230
$3,430

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Illustrated below is a perpetual inventory card for the current year. Date......... Units Purchased... Units Sold.... Units .........................

$1,320
$1,520
$1,600
$1,700

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An entity has 8,000 units in inventory on January 1, valued at 10 per unit. During the year, the entity sold 25,000 units and purchased inventory as ...

$186,978
$197,000
$228,023
$235,000

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On January 1, a company has no opening inventory balance. The following purchases are made during the year: .......................Units Purchased.....

$77,500
$85,000
$86,250
$95,000

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Which inventory pricing method generally approximates current cost for each of the following? Ending Inventory..Cost of Goods Sold

FIFO FIFO
LIFO FIFO
FIFO LIFO
LIFO LIFO

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Which of the following changes in accounting policies resulting from a significant change in the expected pattern of economic benefit will increase p...

A change from FIFO to LIFO inventory valuation when costs are rising.
A change from FIFO to weighted-average inventory valuation when costs are falling.
A change from accelerated to straight-line depreciation in the later years of the depreciable lives of the assets.
change from straight-line to accelerated depreciation in the early years of the depreciable lives of the assets.

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On January 1, a company has no opening inventory balance. The following purchases are made during the year: .......................Units Purchased.....

$77,500
$86,250
$87,500
$95,000

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The advantage of the last-in, first-out inventory method is based on the assumption that

The most recently incurred costs should be allocated to the cost of goods sold.
Costs should be charged to revenue in the order in which they are incurred.
Costs should be charged to cost of goods sold at average cost.
Current costs should be based on representative or normal conditions of efficiency and volume of operations.

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Which inventory cost flow method is prohibited according to IFRS?

First-in, first-out (FIFO) method.
Specific identification method.
Weighted average cost method.
Last-in, first-out (LIFO) method.

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The inventory method yielding the same inventory measurement and cost of goods sold whether a perpetual or periodic system is used is

Average cost.
First-in, first-out.
Last-in, first-out.
Either first-in, first-out or last-in, first-out.

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In a period of rising prices, which one of the following inventory methods usually provides the best matching of expenses against revenues?

Weighted average.
First-in, first-out.
Last-in, first-out.
Specific identification

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Which one of the following actions would result in a decrease in income?

Liquidating last-in, first-out layers of inventory when prices have been increasing.
Changing from first-in, first-out to last-in, first-out inventory method when prices are decreasing
Accelerating purchases at the end of the year when using last-in, first-out inventory method in times of rising prices.
Changing the number of last-in, first-out pools.

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In periods of rising costs, which one of the following inventory cash flow assumptions will result in higher cost of sales?

First-in, first-out.
Last-in, first-out.
Weighted average.
Moving average.

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The weighted average for the year inventory cost flow method is applicable to which of the following inventory systems? Periodic Perpetual

Yes Yes
Yes No
No Yes
No No

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accounting for inventories, generally accepted accounting principles require departure from the historical cost principle when the utility of invento...

Original cost minus allowance for obsolescence.
Original cost plus normal profit margin.
Replacement cost of the inventory.
Original cost minus cost to dispose.

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Based on a physical inventory taken on December 31, Chewy Co. determined its chocolate inventory on a FIFO basis at $26,000 with a replacement cost of...

$28,000
$26,000
$24,000
$20,000

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The lower-of-cost-or-market rule for inventories may be applied to total inventory, to groups of similar items, or to each item. Which application gen...

All applications result in the same amount
Total inventory.
Groups of similar items.
Separately to each item.

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Under the lower-of-cost-or-market method, the replacement cost of an inventory item would be used as the designated market value

When it is below the net realizable value less the normal profit margin.
When it is below the net realizable value and above the net realizable value less the normal profit margin.
When it is above the net realizable value
Regardless of net realizable value.

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The replacement cost of an inventory item is below the net realizable value and above the net realizable value less the normal profit margin. The ori...

Net realizable value.
Net realizable value less the normal profit margin.
Original cost.
Replacement cost.

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Which of the following is true regarding inventory adjustments under IFRS?

IFRS do not require inventory adjustments.
Reversals of adjustments are allowed in a subsequent period.
A reversal of a previous write-down may be higher than the previous write-down.
Adjustments may not be reversed in a subsequent period.

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During January, Metro Co., which maintains a perpetual inventory system, recorded the following information pertaining to its inventory: ..............

$2,640
$3,225
$3,300
$3,900

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An entity that prepares its financial statements using IFRS reported the following selected per-unit data relating to work-in-process: Selling price...

No effect
Reduction of $6.
Reduction of $26
Increase of $5.

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The following data apply to a unit of inventory: Selling price ...................$22 Selling cost...................... 2 Normal profit margin ......

$10.00
$15.00
$17.50
$20.00

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Lorraine Co. has determined its fiscal year-end inventory on a FIFO basis to be $400,000. Information pertaining to that inventory follows: Estimate...

$400,000
$388,000
$360,000
$328,000

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Ward Distribution Company has determined its December 31 inventory on a FIFO basis at $200,000. Information pertaining to that inventory follows: Est...

$0
$6,000
$14,000
$20,000

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A company determined the following information for its inventory at the end of an interim period on June 30, Year 2: Historical cost....................

$77,000 $80,000
$77,000 $76,000
$80,000 $80,000
$80,000 $81,000

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All of the following would appear on a projected schedule of cost of goods manufactured except for

Ending work-in-process inventory.
Beginning finished goods inventory.
The cost of raw materials used.
Applied manufacturing overhead.

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A manufacturer of men’s t-shirts had the following information for last year. Number of shirts sold and produced.. 125,000 Sale price per shirt.. ...

$950,000
$1,950,000
$2,750,000
$3,750,000

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A retail company analyst is comparing North Company to South Company. The analyst notes that receivables for both companies’ private label credit ca...

North’s customers may be having a harder time paying down their credit card debt than South’s customers.
South Company has likely increased its prices higher than North Company.
Both North Company and South Company have increased their prices in the current period; however, South Company has a higher gross margin than North Company.
North Company sells more high-volume, low-margin goods than South Company.

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The optimal level of inventory is affected by all of the following except the

Usage rate of inventory per time period.
Cost per unit of inventory.
Current level of inventory.
Cost of placing an order for merchandise.

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Which one of the following would not be considered a carrying cost associated with inventory?

Insurance costs.
Cost of capital invested in the inventory.
Cost of obsolescence.
Shipping costs.

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An example of a carrying cost is

Disruption of production schedules.
Quantity discounts lost.
Handling costs.
Spoilage.

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The carrying costs associated with inventory management include

Insurance costs, shipping costs, storage costs, and obsolescence.
Storage costs, handling costs, capital invested, and obsolescence.
Purchasing costs, shipping costs, set-up costs, and quantity discounts lost.
Obsolescence, set-up costs, capital invested, and purchasing costs.

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The ordering costs associated with inventory management include

Insurance costs, purchasing costs, shipping costs, and spoilage.
Obsolescence, setup costs, quantity discounts lost, and storage costs.
Purchasing costs, shipping costs, setup costs, and quantity discounts lost.
Shipping costs, obsolescence, setup costs, and capital invested.

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A major supplier has offered Alpha Corporation a year-end special purchase whereby Alpha could purchase 180,000 cases of sport drink at $10 per case. ...

$32,400
$40,500
$64,800
$81,000

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All of the following are inventory carrying costs except

Storage.
Insurance.
Opportunity cost of inventory investment.
Inspections.

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The following information regarding inventory policy was assembled by the JRJ Corporation. The company uses a 50-week year in all calculations. Sales...

3,300 units.
2,100 units.
1,300 units.
800 units.

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The following information regarding inventory policy was assembled by the TKF Corporation. The company uses a 50-week year in all calculations. Sales...

5,500 units.
2,700 units.
1,200 units.
240 units.

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In inventory management, the safety stock will tend to increase if the

Carrying cost increases.
Cost of running out of stock decreases.
Variability of the lead time increases.
Variability of the usage rate decreases.

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The level of safety stock in inventory management depends on all of the following except the

Level of uncertainty of the sales forecast.
Level of customer dissatisfaction for back orders.
Cost of running out of inventory.
Cost to reorder stock.

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A company serves as a distributor of products by ordering finished products once a quarter and using that inventory to accommodate the demand over the...

Increased to accommodate higher sales levels.
Reduced to offset the increased cost of carrying accounts receivable.
Unaffected if safety stock is part of the current quarterly order.
Unaffected if the JIT inventory control system is used.

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The amount of inventory that a company would tend to hold in safety stock would increase as the

Sales level falls to a permanently lower level.
Cost of carrying inventory decreases.
Variability of sales decreases.
Cost of running out of stock decreases.

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The result of the economic order quantity (EOQ) formula indicates the

Annual quantity of inventory to be carried.
Annual usage of materials during the year.
Safety stock plus estimated inventory for the year.
Quantity of each individual order during the year.

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Edwards Manufacturing Corporation uses the standard economic order quantity (EOQ) model. If the EOQ for Product A is 200 units and Edwards maintains a...

250 units.
150 units.
125 units.
100 units

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The economic order quantity for a product is 500 units. However, new orders require 4 working-days lead time during which 80 units will be used. Given...

420 units.
500 units.
509 units.
580 units

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When the economic order quantity (EOQ) model is used for a firm that manufactures its inventory, ordering costs consist primarily of

Insurance and taxes.
Obsolescence and deterioration.
Storage and handling.
Production set-up.

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An inventory management technique designed to minimize inventory investment by having materials arrive at the time they are needed for use is known as...

The economic order quantity model (EOQ).
Materials requirements planning (MRP).
First-in first-out (FIFO).
Just-in-time (JIT).

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All of the following are carrying costs of inventory except

Storage costs.
Insurance.
Shipping costs.
Opportunity costs.

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Valley, Inc., uses 400 lbs. of a rare isotope per year. The isotope costs $500 per lb., but the supplier is offering a quantity discount of 2% for ord...

$1,600
$4,100
$6,600
$12,100

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A review of the inventories of Cedar Grove Company shows the following cost data for entertainment centers. Invoice price $400.00 per unit Freight ...

$105
$115
$120
$420

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Paint Corporation expects to use 48,000 gallons of paint per year costing $12 per gallon. Inventory carrying cost is equal to 20% of the purchase pric...

$2,400
$5,280
$5,760
$8,160

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James Smith is the new manager of inventory at American Electronics, a major retailer. He is developing an inventory control system and knows he shoul...

Customers cannot find the merchandise they want, and they will go to the competition.
Shipments of merchandise from the manufacturers is delayed by as much as 1 week.
The distribution of daily sales will have a large variance due to holidays, weather, advertising, and weekly shopping habits.
New competition may open in the company’s market area.

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Carnes Industries uses the economic order quantity (EOQ) model as part of its inventory control program. An increase in which one of the following var...

Carrying cost rate.
Purchase price per unit.
Ordering costs.
Safety stock level.

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Which one of the following is not explicitly considered in the standard calculation of economic order quantity (EOQ)?

Level of sales.
Fixed ordering costs.
Carrying costs.
Quantity discounts.

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Which one of the following statements concerning the economic order quantity (EOQ) is correct?

The EOQ results in the minimum ordering cost and minimum carrying cost.
Increasing the EOQ is the best way to avoid stockouts.
The EOQ model assumes constantly increasing usage over the year.
The EOQ model assumes that order delivery times are consistent.

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Assume that the following inventory values are determined to be appropriate for Louger Company: Sales 1,000 units Carrying costs 20% of inventory va...

45 units.
100 units.
141 units.
1,000 units.

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The basic Economic Order Quantity (EOQ) model includes which of the following assumptions? I. The same fixed quantity is ordered at each reorder poin...

I and IV only.
II and III only.
I, II, and IV only.
I, II, III, and IV.

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Per the Codification, what is considered the normal capacity of production facilities?

The average production over the previous five-year period.
Actual production for the period.
Actual production for the period plus loss of capacity for planned maintenance.
A range that may vary based on business and industryspecific factors.

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How should unallocated fixed overhead costs be treated?

Allocated to finished goods and cost of goods sold based on ending balances in the accounts.
Allocated to raw materials, work in process, and finished goods, based on the ending balances in the accounts.
Recognized as an expense in the period in which they are incurred.
Allocated to work in process, finished goods, and cost of goods sold based on ending balances in the accounts.

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When manufacturing inventory, what is the accounting treatment for abnormal freight-in costs?

Charge to expense for the period.
Charge to the finished goods inventory.
Charge to raw materials inventory.
Allocate to raw materials, work in process, and finished goods.

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The weighted-average for the year inventory cost flow method is applicable to which of the following inventory systems? Periodic Perpetual

Yes Yes
Yes No
No Yes
No No

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Based on a physical inventory taken on December 31, year 2, Chewy Co. determined its chocolate inventory on a FIFO basis at $26,000 with a replaceme...

$28,000
$26,000
$24,000
$20,000

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Reporting inventory at the lower of cost or market is a departure from the accounting principle of

Historical cost.
Consistency.
Conservatism.
Full disclosure.

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The original cost of an inventory item is below both replacement cost and net realizable value. The net realizable value less normal profit margin i...

Replacement cost.
Net realizable value.
Net realizable value less normal profit margin.
Original cost.

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Which of the following statements are correct when a company applying the lower of cost or market method reports its inventory at replacement cost? ...

I only.
II only.
Both I and II.
Neither I nor II.

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The original cost of an inventory item is above the replacement cost and the net realizable value. The replacement cost is below the net realizable ...

Net realizable value.
Net realizable value less the normal profit margin.
Replacement cost.
Original cost.

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On January 1, year 2, Card Corp. signed a three-year noncancelable purchase contract, which allows Card to purchase up to 500,000 units of a compute...

$24,000
$20,000
$16,000
$ 8,000

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Thread Co. is selecting its inventory system in preparation for its first year of operations. Thread intends to use either the periodic weighted-ave...

Perpetual Total inventory
Perpetual Individual item
Periodic Total inventory
Periodic Individual item

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A company decided to change its inventory valuation method from FIFO to LIFO in a period of rising prices. What was the result of the change on endi...

Increase Increase
Increase Decrease
Decrease Decrease
Decrease Increase

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Generally, which inventory costing method approximates most closely the current cost for each of the following? Cost of goods sold Ending inventory

LIFO FIFO
LIFO LIFO
FIFO FIFO
FIFO LIFO

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During periods of rising prices, a perpetual inventory system would result in the same dollar amount of ending inventory as a periodic inventory sys...

Yes No
Yes Yes
No Yes
No No

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Estimates of price-level changes for specific inventories are required for which of the following inventory methods?

Conventional retail.
Dollar-value LIFO.
Weighted-average cost.
Average cost retail.

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When the double-extension approach to the dollar-value LIFO inventory method is used, the inventory layer added in the current year is multiplied by...

In the numerator, the average of the ending inventory at base year cost and at current year cost.
In the numerator, the ending inventory at current year cost, and, in the denominator, the ending inventory at base year cost.
In the numerator, the ending inventory at base year cost, and, the denominator, the ending inventory at current year cost.
In the denominator, the average of the ending inventory at base year cost and at current year cost.

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Jones Wholesalers stocks a changing variety of products. Which inventory costing method will be most likely to give Jones the lowest ending inventor...

Specific identification.
Weighted-average.
Dollar-value LIFO.
FIFO periodic.

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Dart Company’s accounting records indicated the following information: Inventory, 1/1/Y2 $ 500,000 Purchases during year 2 2,500,000 Sales durin...

$ 25,000
$100,000
$175,000
$225,000

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Herc Co.’s inventory at December 31, year 2, was $1,500,000 based on a physical count priced at cost, and before any necessary adjustment for the ...

$1,500,000
$1,590,000
$1,620,000
$1,710,000

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Kew Co.’s accounts payable balance at December 31, year 2, was $2,200,000 before considering the following data: • Goods shipped to Kew FOB ship...

$2,170,000
$2,180,000
$2,230,000
$2,280,000

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Lewis Company’s usual sales terms are net sixty days, FOB shipping point. Sales, net of returns and allowances, totaled $2,300,000 for the year en...

$2,330,000
$2,280,000
$2,250,000
$2,230,000

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On January 1, year 2, Dell, Inc. contracted with the city of Little to provide custom built desks for the city schools. The contract made Dell the c...

$450,000
$495,000
$550,000
$605,000

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On October 20, year 2, Grimm Co. consigned forty freezers to Holden Co. for sale at $1,000 each and paid $800 in transportation costs. On December 3...

$ 7,700
$ 8,500
$ 9,800
$10,000

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On December 1, year 2, Alt Department Store received 505 sweaters on consignment from Todd. Todd’s cost for the sweaters was $80 each, and they we...

$49,000
$45,400
$45,000
$40,400

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Southgate Co. paid the in-transit insurance premium for consignment goods shipped to Hendon Co., the consignee. In addition, Southgate advanced part...

Yes Yes
No No
Yes No
No Yes

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Jel Co., a consignee, paid the freight costs for goods shipped from Dale Co., a consignor. These freight costs are to be deducted from Jel’s payme...

Cost of goods sold.
Freight-out costs.
Selling expenses.
Accounts receivable.

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Jel Co., a consignee, paid the freight costs for goods shipped from Dale Co., a consignor. These freight costs are to be deducted from Jel’s payme...

Cost of goods sold.
Freight-out costs.
Selling expenses.
Accounts receivable.

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Brady Corporation values its inventory at the lower of cost or net realizable value as required by IFRS. Brady has the following information regardi...

$1,000
$ 900
$ 850
$ 750

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