Inventory Management Paper 9

1

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 value less the normal profit margin. As a result, under the lower of cost or market method, the inventory item should be reported at the






2

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 computer part annually from Hart Supply Co. at $.10 per unit and guarantees a minimum annual purchase of 100,000 units. During year 2, the part unexpectedly became obsolete. Card had 250,000 units of this inventory at December 31, year 2, and believes these parts can be sold as scrap for $.02 per unit. What amount of probable loss from the purchase commitment should Card report in its year 2 income statement?






3

Thread Co. is selecting its inventory system in preparation for its first year of operations. Thread intends to use either the periodic weighted-average method or the perpetual movingaverage method, and to apply the lower of cost or market rule either to individual items or to the total inventory. Inventory prices are expected to generally increase throughout year 2, although a few individual prices will decrease. What inventory system should Thread select if it wants to maximize the inventory carrying amount at December 31, year 2?
Inventory method
Cost or market application






4

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 ending inventory and net income in the year of the change?
Ending inventory
Net income






5

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






6

During periods of rising prices, a perpetual inventory system would result in the same dollar amount of ending inventory as a periodic inventory system under which of the following inventory cost flow methods?
FIFO
LIFO






7

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






8

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 an index number. Which of the following correctly states how components are used in the calculation of this index number?






9

Jones Wholesalers stocks a changing variety of products. Which inventory costing method will be most likely to give Jones the lowest ending inventory when its product lines are subject to specific price increases?






10

Dart Company’s accounting records indicated the following information:
Inventory, 1/1/Y2 $ 500,000
Purchases during year 2 2,500,000
Sales during year 2 3,200,000
A physical inventory taken on December 31, year 2, resulted in an ending inventory of $575,000. Dart’s gross profit on sales has remained constant at 25% in recent years. Dart suspects some inventory may have been taken by a new employee. At December 31, year 2, what is the estimated cost of missing inventory?






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