Q: What is the formula for gross profit percentage?

$\frac{\text{Revenue} - \text{Cost of Goods Sold}}{\text{Revenue}} \times 100$

Q: What is the formula for inventory turnover ratio?

$\frac{\text{Cost of Goods Sold}}{\frac{\text{Beginning Inventory} + \text{Ending Inventory}}{2}}$

Question 1

Which inventory costing method is NOT allowed under IFRS standards?

Accepted Answer

Last-in, first-out (LIFO)

Question 2

A company has the following inventory transactions: Beginning inventory of 10 units at $10 each, purchases of 25 units at $14 each, and 25 units at $18 each. If 40 units are sold, what is the cost of goods sold under the FIFO method?

Accepted Answer

$100 + $350 + $90 = $540

Question 3

Under the perpetual inventory system, which of the following is TRUE?

Accepted Answer

A running total of all goods bought, sold, and on hand is kept

Question 4

If inventory prices are rising, which method will result in the highest ending inventory value?

Accepted Answer

FIFO

Question 5

A retailer sells two shirts for $50 each that originally cost $30 each. What is the gross profit from this transaction?

Accepted Answer

$40

Question 6

Which principle requires businesses to use the same accounting methods from year to year to allow comparability?

Accepted Answer

Comparability Principle

Question 7

How is inventory reported on the balance sheet if the net realizable value (NRV) is lower than cost?

Accepted Answer

At NRV

Question 8

A manufacturing company allocates indirect production overheads based on normal capacity. If actual production is less than normal capacity, what happens to the excess overhead costs?

Accepted Answer

They are expensed in the period

Question 9

Calculate the average cost per unit if a company has beginning inventory of 10 units at $10, purchases 25 units at $14, and 25 units at $18.

Accepted Answer

$15

Question 10

Which inventory method is most popular among companies according to the AICPA survey?

Accepted Answer

FIFO

Question 11

A company has the following inventory values at year-end: FIFO $458,000, Average Cost $425,000, NRV $367,000. What value should be reported on the balance sheet?

Accepted Answer

$367,000

Question 12

Which of the following is a direct cost in manufacturing inventory?

Accepted Answer

Raw materials

Question 13

If a company changes its inventory costing method, what must it do according to the comparability principle?

Accepted Answer

Disclose the effect on net income

Question 14

Which inventory system does NOT keep a running total of all goods bought, sold, and on hand?

Accepted Answer

Periodic

Question 15

A company has beginning inventory of $100, purchases of $350 and $450, and sells 40 units. What is the cost of goods sold under the average cost method if the average cost per unit is $15?

Accepted Answer

$600

Question 16

Which inventory costing method is best suited for businesses with unique inventory items?

Accepted Answer

Specific unit

Question 17

If a company overproduces relative to normal capacity, how does this affect the allocation of fixed overheads to inventory?

Accepted Answer

Fixed overhead per unit decreases

Question 18

What is the formula for gross profit percentage?

Accepted Answer

$\frac{	ext{Revenue} - 	ext{Cost of Goods Sold}}{	ext{Revenue}} 	imes 100$

Question 19

Which of the following is NOT included in work in progress (WIP) inventory costs?

Accepted Answer

Sales commissions

Question 20

What is the formula for inventory turnover ratio?

Accepted Answer

$\frac{	ext{Cost of Goods Sold}}{\frac{	ext{Beginning Inventory} + 	ext{Ending Inventory}}{2}}$

Inventory and Merchandizing Operations: Financial Accounting Study Notes

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