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22 Cards in this Set

  • Front
  • Back

What is raw materials inventory?

all the materials you've purchased for the product but have not yet been put in to production

What is work-in-process inventory?

products that are still being build ("work in process"

What is included in the work-in-process inventory?

  • raw materials and components
  • human labor
  • factory utilities
  • and other factory related resources

What is Just-in-Case inventory?

inventory to account for unforseen problems

What is included in the inventory carrying cost? (3)

  • insurance
  • building usage cost
  • cost of capital invested by the inventory

What is the difference between F.OB. shipping point and F.O.B destination?

shipping point- the buyer is liable for the goods once they leave the seller

destination- the seller is responsible for the delivery of the goods until they reach the consumer

The cost associated with an inventory shortage is know as _________ ___________.

Inventory shrinkage

If the physical inventory is greater than what is recorded on the books, the company makes an adjusting entry. What does that look like?


Cost of Goods Sold

What does the specific identification method do?

  1. It keeps tracks of purchases and how much each unit costs and how many units were bought
  2. once the ending inventory is recorded, the ending balance is subtracted from the original to get the Cost of Goods Sold

How do you calculate Average Unit Cost?

Total Cost of Goods Available for Sale

Total Units Available for Sale

Which inventory method produces the highest year-end value inventory?


What inventory method would be used by a company with a small volume of products with relatively high unit values? Such as airplanes, jewelry, and construction equipment.

Specific Identification Method

What type of inventory method would you want to use if you had perishable items?

FIFO method - because you want to sell your most perishable items first

Why might a company want to use the LIFO inventory method?

the potential income tax savings associated with it's use

When should one use the Weighed Average Cost Method?

When they have a warehouse with a large volume of goods

During times of rising inventory prices, which inventory method would you want to use because of the more favorable cash flow?


BUT: if the inventory prices are falling, you want to use FIFO

What is the LIFO conformity rule?

says that any company that selects LIFO for income tax must also use LIFO for financial reporting to shareholders

Net realizable value is:

the amount put on the books for how much you're going to get out of a product where you lose money

Exp: $300 camera can only be sold for $200 because it's damaged. There's also a $20 selling cost.

So the final amount you would journalize is $180

What does inventory turnover indicate?

how many times a year on average a firm sells its inventory

How do you calculate inventory turnover?

Cost of Goods Sold

Average inventory

How do you calculate the Day's sales in inventory?


Inventory Turnover

What does Days' sales in inventory calculate?

How many days it takes on average for a firm to sell its inventory