Inventory Management Paper 8

1

Assume that the following inventory values are determined to be appropriate for Louger Company:
Sales 1,000 units
Carrying costs 20% of inventory value
Purchase price $10 per unit
Cost per order $10
What is the economic order quantity (EOQ) for Louger?






2

The basic Economic Order Quantity (EOQ) model includes which of the following assumptions?
I. The same fixed quantity is ordered at each reorder point.
II. Purchasing costs are unaffected by the quantity ordered.
III. Purchase order lead-time is known with certainty.
IV. Adequate inventory is always maintained to avoid stockouts.






3

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






4

How should unallocated fixed overhead costs be treated?






5

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






6

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






7

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 replacement cost of $20,000. Chewy estimated that, after further processing costs of $12,000, the chocolate could be sold as finished candy bars for $40,000. Chewy’s normal profit margin is 10% of sales. Under the lower of cost or market rule, what amount should Chewy report as chocolate inventory in its December 31, year 2 balance sheet?






8

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






9

The original cost of an inventory item is below both replacement cost and net realizable value. The net realizable value less normal profit margin is below the original cost. Under the lower of cost or market method, the inventory item should be valued at






10

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. The original cost is less than replacement cost.
II. The net realizable value is greater than replacement cost.






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