Multiple Choice Quiz Inventory Methods

2.

The inventory costing method that charges the most recent costs incurred against revenue

Lifo
Fifo
Average cost

Correct Answer

A. Lifo

Explanation

LIFO stands for "last in, first out" and is an inventory costing method that assumes the most recent costs incurred are the first ones to be charged against revenue. This means that when calculating the cost of goods sold, the inventory items that were most recently purchased or produced are considered to be sold first. As a result, the older inventory items remain in the inventory until the most recent ones are depleted. LIFO is commonly used in situations where there is inflation, as it allows companies to match the higher costs of recently acquired inventory with the current higher selling prices.

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3.

The following units of a particular item were purchased and sold during the period: Beginning inventory 40 units at P20 First purchase 50 units at P21 Second purchase 50 units at P22 First sale 110 units Third purchase 50 units at 23 Second sale 45 units What is the cost of the 35 units on hand at the end of the period as determined under the perpetual inventory system by the lifo costing method

P715
700
705
805

Correct Answer

A. P715

Explanation

The cost of the 35 units on hand at the end of the period is determined using the LIFO (Last In, First Out) costing method. According to this method, the cost of the most recent purchases is assigned to the units sold first, and the cost of the older purchases is assigned to the units remaining on hand. In this case, the most recent purchase was 50 units at P23, which means the cost of the 35 units on hand would be 35 units multiplied by P23, resulting in a total cost of P805.

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4.

The following units of a particular item were purchased and sold during the period: Beginning inventory 40 units at P20 First purchase 50 units at P21 Second purchase 50 units at P22 First sale 110 units Third purchase 50 units at 23 Second sale 45 units What is the cost of the 35 units on hand at the end of the period as determined under the periodic inventory system by the fifo costing method

20
21
22
23

Correct Answer

A. 23

Explanation

The cost of the 35 units on hand at the end of the period is determined under the FIFO costing method. FIFO stands for "first-in, first-out," which means that the first units purchased are considered to be the first ones sold. In this case, the 35 units on hand at the end of the period were from the third purchase at a cost of P23 per unit. Therefore, the cost of the 35 units on hand is P23 per unit.

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5.

If the merchandise inventory is being valued at cost and the price level is steadily rising,the method of costing that will yield the highest net income is:

Lifo
Fifo
Average cost

Correct Answer

A. Fifo

Explanation

FIFO (First-In, First-Out) method of costing assumes that the items purchased or produced first are the first ones to be sold. In a situation where the price level is steadily rising, using FIFO would result in lower cost of goods sold (COGS) because the older, lower-cost inventory is being sold first. This in turn would yield higher net income as the higher-priced inventory remains in the balance sheet. Therefore, FIFO is the method of costing that will yield the highest net income in this scenario.

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Multiple Choice Quiz Inventory Methods

The inventory costing method that is based on the assumption that cost should be charged against revenue in the order in which they were incurred.

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The inventory costing method that charges the most recent costs incurred against revenue

If the merchandise inventory is being valued at cost and the price level is steadily rising,the method of costing that will yield the highest net income is: