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The inventory turnover ratio is calculated as:


A) cost of goods sold divided by sales.
B) cost of goods sold divided by average inventory.
C) ending inventory divided by cost of goods sold.
D) average inventory divided by cost of goods sold.

E) All of the above
F) B) and D)

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Which of the following is not associated with a high inventory turnover ratio?


A) A reduction in storage and obsolescence costs.
B) Relatively short time periods between inventory purchases and sales.
C) A drop in the demand for the company's products.
D) A reduction in borrowing to finance inventory purchases.

E) B) and D)
F) A) and B)

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Which of the following is not one of the primary goals of inventory management?


A) Maintain a sufficient quantity of inventory to meet customer needs.
B) Ensure inventory quality meets customers' expectations and company standards.
C) Minimize the cost of acquiring and carrying inventory (including costs related to purchasing,production,storage,spoilage,theft,obsolescence,and financing) .
D) Minimize the quantity of ending inventory.

E) None of the above
F) A) and D)

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In a period of falling prices,the inventory costing method that assigns a value to inventory that approximates current cost is:


A) FIFO.
B) LIFO.
C) Specific identification.
D) Weighted average.

E) B) and D)
F) All of the above

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A $15,000 understatement of the current year's ending inventory was discovered after the financial statements for the year were prepared.How would that inventory error impact the current year's financial statements?


A) Current assets were overstated and net income was understated.
B) Current assets were overstated and net income was overstated.
C) Current assets were understated and net income was understated.
D) Current assets were understated and net income was overstated.

E) B) and C)
F) A) and C)

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Match the term to the appropriate definition.There are more definitions than terms. -Consignment Inventory


A) Inventory costing method that identifies the cost of the specific item that was sold.
B) Inventory costing method that assumes that the costs of the first goods purchased are the costs of the first goods sold.
C) The difference between net sales and cost of goods sold.
D) The inventory that starts the manufacturing process.
E) Inventory items being transported.
F) Consists of products acquired in a finished condition,ready for sale without further processing.
G) A valuation rule that requires Inventory to be written down when its market value falls below its cost.
H) The expense that follows directly after Net Sales on a multiple step income statement.
I) Beginning Inventory + Purchases - Cost of Goods Sold
J) Goods a company is holding on behalf of the goods' owner.
K) Inventory costing method that assumes that the costs of the last goods purchased are the costs of the first goods sold.
L) Requires that if LIFO is used on the income tax return,it also must be used in financial statement reporting.
M) Beginning Inventory + Purchases - Ending Inventory
N) Goods that are in the process of being manufactured.
O) Inventory costing method that uses the weighted average unit cost of the goods available for sale for both cost of goods sold and ending inventory.
P) Goods that are held for sale in the normal course of business or are used to produce other goods for sale.
Q) How many times (on average) that inventory has been bought or sold.
R) Inventory that was in process and now is completed and ready for sale.
S) A measure of the average number of days from the time inventory is bought to the time it is sold.

T) D) and M)
U) B) and S)

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The Xu Corporation uses a periodic inventory system.The company has a beginning inventory of 300 units at $5 each on January 1.Xu purchases 500 units at $4 each in February and 200 units at $6 each in March.There were no additional purchases or sales during the remainder of the year. Xu sells 300 units during the quarter.If Xu uses the LIFO method,what is its cost of goods sold?


A) $1,600
B) $1,400
C) $1,500
D) $1,800

E) A) and C)
F) B) and D)

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FIFO,an inventory costing method,actually describes how to calculate the:


A) cost of goods sold.
B) cost of goods available for sale.
C) beginning inventory.
D) purchases.

E) B) and C)
F) None of the above

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Saguaro Company updates its inventory perpetually.Its beginning inventory is $70,000,goods purchased during the period cost $240,000,and the cost of goods sold for the period is $280,000.What is the amount of the ending inventory?


A) $90,000
B) $40,000
C) $50,000
D) $30,000

E) A) and B)
F) B) and D)

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Goods on consignment are goods shipped by the owner to another company that holds the goods and sells them on behalf of the owner.

A) True
B) False

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Carrying insufficient quantities of inventory on hand:


A) would not affect the company's profitability.
B) may result in lost sales.
C) has little effect on customer satisfaction.
D) will increase the costs of carrying inventory.

E) A) and B)
F) A) and C)

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Assume a periodic inventory system is used.The LIFO inventory costing method assumes that the cost of the units most recently purchased is the:


A) last to be assigned to cost of goods sold.
B) first to be assigned to ending inventory.
C) first to be assigned to cost of goods sold.
D) last to be assigned to units available for sale.

E) A) and D)
F) B) and D)

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Windrose,Inc.uses a periodic inventory system and its inventory records contain the following information: Windrose,Inc.uses a periodic inventory system and its inventory records contain the following information: The company sold 2,000 units during June.There were no additional purchases or sales during the remainder of the year.The company had 1,000 units were in its ending inventory at the end of the year. If Windrose uses the FIFO costing method,what is the cost of its ending inventory? A) $2,988 B) $4,580 C) $5,160 D) $5,412 The company sold 2,000 units during June.There were no additional purchases or sales during the remainder of the year.The company had 1,000 units were in its ending inventory at the end of the year. If Windrose uses the FIFO costing method,what is the cost of its ending inventory?


A) $2,988
B) $4,580
C) $5,160
D) $5,412

E) A) and C)
F) None of the above

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Which of the following statements about inventory turnover analysis is not correct?


A) In making comparisons of financial statements,it is desirable to compare data calculated using the same inventory costing methods.
B) The inventory turnover ratio and days to sell measure will be affected by the cost flow assumptions used,which causes problems for financial statements users.
C) Inventory turnover also can vary significantly between companies within the same industry.
D) The inventory turnover and days to sell ratios are consistent among companies in different industries.

E) C) and D)
F) B) and C)

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Which of the following would cause the greatest increase in a company's inventory turnover ratio?


A) Keeping the same amount of inventory on hand while unit sales are increasing.
B) Increasing the amount of inventory on hand while unit sales are increasing.
C) Keeping the same amount of inventory on hand while unit sales are decreasing.
D) Decreasing the amount of inventory on hand while unit sales are increasing.

E) All of the above
F) None of the above

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The LIFO inventory cost flow assumes that the cost of the newest goods purchased are:


A) assumed to be the last ones to be sold.
B) not included in cost of goods sold or ending inventory.
C) assumed to be the first ones included ending inventory.
D) assumed to be the first ones sold.

E) A) and B)
F) None of the above

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Ending inventory is incorrectly calculated in the current year.It is accurately calculated at the end of the next year.The error in the ending inventory in the current year:


A) affects only income statement accounts.
B) affects only balance sheet accounts.
C) can be ignored since it will self-correct.
D) is a self-correcting error.

E) A) and B)
F) A) and C)

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Match the term to the appropriate definition.There are more definitions than terms. -Raw Materials Inventory


A) Inventory costing method that identifies the cost of the specific item that was sold.
B) Inventory costing method that assumes that the costs of the first goods purchased are the costs of the first goods sold.
C) The difference between net sales and cost of goods sold.
D) The inventory that starts the manufacturing process.
E) Inventory items being transported.
F) Consists of products acquired in a finished condition,ready for sale without further processing.
G) A valuation rule that requires Inventory to be written down when its market value falls below its cost.
H) The expense that follows directly after Net Sales on a multiple step income statement.
I) Beginning Inventory + Purchases - Cost of Goods Sold
J) Goods a company is holding on behalf of the goods' owner.
K) Inventory costing method that assumes that the costs of the last goods purchased are the costs of the first goods sold.
L) Requires that if LIFO is used on the income tax return,it also must be used in financial statement reporting.
M) Beginning Inventory + Purchases - Ending Inventory
N) Goods that are in the process of being manufactured.
O) Inventory costing method that uses the weighted average unit cost of the goods available for sale for both cost of goods sold and ending inventory.
P) Goods that are held for sale in the normal course of business or are used to produce other goods for sale.
Q) How many times (on average) that inventory has been bought or sold.
R) Inventory that was in process and now is completed and ready for sale.
S) A measure of the average number of days from the time inventory is bought to the time it is sold.

T) C) and E)
U) O) and S)

Correct Answer

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When costs to purchase inventory are decreasing,using LIFO leads to reporting ________ cost of goods sold and ________ net income than FIFO.


A) lower;higher
B) higher;higher
C) lower;lower
D) higher,lower

E) A) and C)
F) B) and C)

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When the market value of inventory drops below the cost recorded in the financial records,applying the lower of cost or market/net realizable value (LCM/NRV) rule causes:


A) a decrease in cost of goods sold.
B) no change in net income,other things being equal.
C) a decrease in total assets.
D) an increase in net income.

E) A) and B)
F) A) and C)

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