Inventory Basics
This term refers to items a company intends to sell to customers in the ordinary course of business.
What is inventory?
Beginning inventory + purchases = this total amount.
What is inventory available for sale?
This method assumes the earliest units purchased are the first ones sold.
What is FIFO?
A company buys 50 units at $8 and 100 units at $10. Under FIFO, what is the cost of the first 50 units sold?
What is $400?
This rule requires companies using LIFO for tax reporting to also use it for financial reporting.
What is the LIFO conformity rule?
This type of company holds raw materials, work in process, and finished goods.
What is a manufacturing company?
Inventory not sold by year‑end becomes this.
What is ending inventory?
This method assumes the most recently purchased units are sold first.
What is LIFO?
A company buys 200 units at $12 and later 100 units at $15. Under LIFO, what is the cost of the last 60 units sold?
What is $900?
FIFO is often chosen because it most closely matches this real‑world pattern.
What is the physical flow of inventory?
A merchandising company reports this single inventory category on its balance sheet.
What is merchandise inventory?
Inventory sold during the period is recorded as this income‑statement item.
What is cost of goods sold?
This method assigns each unit a cost equal to the average cost of all units available.
What is weighted‑average cost?
A company has 300 units available costing $3,600 total. Compute the weighted‑average cost per unit.
What is $12 per unit?
Under rising costs, FIFO results in lower cost of goods sold and therefore higher ________.
What is net income?
This financial statement reports inventory as a current asset.
What is the balance sheet?
If beginning inventory is $12,000 and purchases are $48,000, what is goods available for sale?
What is $60,000?
Under rising costs, this method produces the highest ending inventory.
What is FIFO?
A company sells 180 units. Weighted‑average cost is $14. What is cost of goods sold?
What is $2,520?
Under rising costs, LIFO results in the lowest ending inventory, which affects this financial statement.
What is the Balance Sheet?
Service companies recognize revenue when providing services, but merchandising companies recognize revenue at this point.
What is when inventory is sold to customers?
If goods available for sale are $90,000 and ending inventory is $24,000, compute cost of goods sold.
What is $66,000?
Under rising costs, this method produces the lowest net income and therefore the greatest tax savings.
What is LIFO?
Inventory available for sale totals $25,000. Ending inventory under FIFO is $7,200. Compute cost of goods sold.
What is $17,800?
A company wants to minimize taxable income during inflation. Which inventory method should it choose and why?
What is LIFO, because it reports higher cost of goods sold and lower taxable income?