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12 Cards in this Set
- Front
- Back
Which inventory cost method should be used ?
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Inflation= FIFO (income and inventory are higher and cash flow is lower under) Opposite effect with lifo. LIFO good for reducing taxes. Average cost can moderate the impact of changing prices.
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Inventory turnover ratio =
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Cost of goods sold/average inventory (average= Beginning Inventory+Ending Inventory) /2)
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Days in inventory =
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365 days/inventory turnover ratio (Cost of goods sold/average inventory)
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FOB shipping point
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term of sale.
Ownership of the goods passes to the buyer when the public carrier accepts the goods from the seller. |
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FOB destination
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term of sale. Ownership of the goods remains with the seller until the goods reach the buyer.
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cost of goods sold =
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=Total Inventory price(Beginning Inventory + Purchases) - Ending Inventory price
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cheat sheet for fifo and lifo methods
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Need # units unsold=Total units - units sold, if not provided already. FIFO means first in first out, so to find out the ending inventory price, we have to take the most recent purchase (that's not sold) and work backwards till all units in inventory are costed (to total units unsold).Then multiply units by unit cost and add those units up to= unsold inventory price. total cost - price of unsold= cost of goods sold. For proof do the opposite and add up to cost of total sold.
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Calculating ending for average
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Use weight average*remaining # of units. Weight average unit cost = total cost/total units
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Weight average unit cost =
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total cost/total units
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would cause the inventory turnover ratio to increase the most
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Decreasing the amount of inventory on hand and increasing sales.
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In a perpetual inventory system,
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FIFO cost of goods sold will be the same as in a periodic inventory system.
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FIFO vs Average vs LIFO outcome
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FIFO gives highest income (overstates, understates cogs), average in the middle, LIFO in the lowest income (understates, good for taxes, overstates cogs)
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