Question 1

Mercury Corp. has 700 units in ending inventory worth $21,000. The average cost per unit is:
A) $50.
B) $30.
C) $16.
D) $47.

Accepted Answer

The average cost per unit is calculated by dividing the total cost of goods available for sale by the total units available for sale. In this case, $21,000 divided by 700 units equals $30 per unit.

Question 2

The last-in, first-out (LIFO) method is based on the assumption that the units of inventories purchased last will be sold last.

Accepted Answer

The last-in, first-out (LIFO) method is based on the assumption that the units of inventories purchased last are the first ones to be sold.

Question 3

Information relating to the beginning inventory and purchase of inventory by Marigold Corp. is as follows:
Calculate the cost of 100 units in the ending inventory by the last-in, first-out (LIFO) method of inventory valuation.
 $$\begin{array} { l l l } 
\text { Specific Purchase } & \text { Number of Units } & \text { Cost per Unit } \
\text { Beginning inventory } & 20 & \$ 50 \
\text { First purchase } & 60 & \$ 60 \
\text { Second purchase } & 55 & \$ 80
\end{array}$$

Accepted Answer

Cost of ending inventory of 100 units = (20 units of beginning inventory × Cost per unit of beginning inventory) + (60 units of first purchase × Cost per unit of first purchase) + (20 units of second purchase × Cost per unit of second purchase) = (20 units × $50) + (60 units × $60) + (20 units × $80) = $1,000 + $3,600 + $1,600 = $6,200​

Question 4

In the first-in, first-out (FIFO) method of inventory valuation, the ending inventory is valued at the most recent cost, referred to as:
A) average cost.
B) opportunity cost.
C) replacement cost.
D) sunk cost.

Accepted Answer

In the FIFO method, the assumption is that the first items purchased are the first items sold or used, so the ending inventory consists of the most recently purchased items. Therefore, the ending inventory is valued at the current cost, which is also known as the replacement cost.

Question 5

The _____ method of inventory valuation is based on the assumption that the last purchased units will be sold first.
A) first-in, first-out (FIFO)
B) ​last-in, first-out (LIFO)
C) ​weighted-average-cost
D) standard-average-cost

Accepted Answer

LIFO method assumes that the most recent inventory items (i.e. last-in) are sold first, and therefore the cost of goods sold is based on the most recent inventory costs. LIFO is usually preferred when inventory costs are rising, as it helps to reduce taxes by matching the most recent and higher inventory costs against revenue.

Question 6

The _____ method of inventory valuation is based on the assumption that the units purchased first will be sold first.
A) first-in, first-out (FIFO)
B) first-in, last-out (FILO)
C) last-in, first-out (LIFO)
D) last-in, last-out (LILO)

Accepted Answer

FIFO assumes that the oldest units are sold first, which means that the cost of goods sold will reflect the actual cost of the oldest units, while the ending inventory will reflect the cost of the most recent purchases. This method is considered more accurate, as it reflects the actual flow of inventory and the cost of goods sold more closely.

Question 7

The first-in, first-out (FIFO) method is based on the assumption that the units of inventories purchased first will be sold first.

Accepted Answer

The statement is true. FIFO assumes that the oldest inventory purchased is sold first, while newer inventory remains unsold.

Question 8

Which of the following methods of inventory valuation is a compromise between the last-in, first-out (LIFO) method and the first-in, first-out (FIFO) method for both the amount of the ending inventory and the cost of goods sold?
A) The weighted-average-cost method
B) The standard-average-cost method
C) The fixed cost method
D) The variable cost method

Accepted Answer

The weighted-average-cost method takes an average of all the units in inventory, regardless of when they were purchased or produced, to determine the cost of goods sold and the value of the ending inventory. This method is a compromise between LIFO and FIFO because it takes into account all units available for sale during the period.

Question 9

In the _____ method of inventory valuation, the costs of the units left over in ending inventory will be from the items purchased earliest.
A) first-in, first-out (FIFO)
B) first-in, last-out (FILO)
C) last-in, first-out (LIFO)
D) last-in, last-out (LILO)

Accepted Answer

The answer of In the _____ method of inventory valuation,...

Question 10

Information relating to the beginning inventory and purchase of inventory by Magnesium Chemicals is as follows: The cost of 50 units in the ending inventory using the first-in, first-out method is:
$$\begin{array} { l l l } 
\text { Specific Purchase } & \text { Number of Units } & \text { Cost per Unit } \
\text { Beginning inventory } & 25 & \$ 100 \
\text { First purchase } & 30 & \$ 95 \
\text { Second purchase } & 40 & \$ 105
\end{array}$$
A) $2,345.
B) $5,567.
C) $3,000.
D) $5,150.

Accepted Answer

Under the FIFO method, the ending inventory consists of the most recent purchases. Therefore, the 50 units in ending inventory would be from the second purchase (40 units at $105) and 10 units from the first purchase (10 units at $95). The calculation is: (40 units x $105) + (10 units x $95) = $4,200 + $950 = $5,150.

Question 11

The weighted-average-cost method uses standard cost per unit to determine ending inventory value.

Accepted Answer

The weighted-average-cost method uses the weighted average cost per unit to determine ending inventory value, which takes into account the cost of all units purchased or produced during the accounting period. It does not use standard cost per unit. Standard cost per unit is used in a different method called standard costing.

Question 12

If average cost per unit is $120, then cost of ending inventory of 150 units using the weighted average cost method of inventory valuation is:
A) $10,000.
B) $18,000.
C) $35,000.
D) $40,000.

Accepted Answer

Weighted average cost method takes into account the average cost per unit of all units available for sale during the accounting period.

In this case, the cost of ending inventory of 150 units will be calculated as:
150 x $120 = $18,000

Therefore, the correct answer is B, $18,000.

Question 13

​The _____ method of inventory valuation provides the most realistic amount of ending merchandise inventory in the Current Assets section of the balance sheet.
A) last-in, first-out (LIFO)
B) ​first-in, first-out (FIFO)
C) ​weighted-average-cost
D) marginal-average-cost

Accepted Answer

The FIFO method assumes that the oldest inventory items are sold first, meaning that the remaining inventory consists of the most recently purchased items. This provides a more realistic value for ending inventory on the balance sheet because it reflects the actual cost of the most recent items in inventory. Additionally, FIFO tends to result in higher net income because it assumes that the cheaper, older inventory items were sold first, leaving the more expensive items in inventory, which helps to increase the value of remaining inventory on the balance sheet.

Question 14

Which of the following mathematical expressions calculates the average cost per unit?
A) Average Cost per Unit = ​Total Cost / Total Units Available
B) Average Cost per Unit = ​Variable Cost / Total Units Sold
C) Average Cost per Unit = ​Fixed Cost / Total Units Purchased
D) Average Cost per Unit = ​Mixed Cost / Total Units Used

Accepted Answer

The formula for calculating average cost per unit is total cost divided by total units available. This includes both fixed and variable costs. Therefore, option A is the correct choice.

Question 15

The _____ method of inventory valuation provides the most realistic amount for the Cost of Goods Sold section of the income statement.​
A) break-even cost
B) total cost
C) ​first-in, first-out (FIFO)
D) ​last-in, first-out (LIFO)

Accepted Answer

The LIFO method assumes that the most recently purchased items are sold first, which often aligns more closely with current market prices, providing a more realistic cost of goods sold during periods of inflation.

Quiz 15: Inventory Methods

Mercury Corp. has 700 units in ending inventory worth $21,000. The average cost per unit is:

The last-in, first-out (LIFO) method is based on the assumption that the units of inventories purchased last will be sold last.

In the first-in, first-out (FIFO) method of inventory valuation, the ending inventory is valued at the most recent cost, referred to as:

The _____ method of inventory valuation is based on the assumption that the last purchased units will be sold first.

The _____ method of inventory valuation is based on the assumption that the units purchased first will be sold first.

The first-in, first-out (FIFO) method is based on the assumption that the units of inventories purchased first will be sold first.

Which of the following methods of inventory valuation is a compromise between the last-in, first-out (LIFO) method and the first-in, first-out (FIFO) method for both the amount of the ending inventory and the cost of goods sold?

In the _____ method of inventory valuation, the costs of the units left over in ending inventory will be from the items purchased earliest.

The weighted-average-cost method uses standard cost per unit to determine ending inventory value.

If average cost per unit is $120, then cost of ending inventory of 150 units using the weighted average cost method of inventory valuation is:

​The _____ method of inventory valuation provides the most realistic amount of ending merchandise inventory in the Current Assets section of the balance sheet.

Which of the following mathematical expressions calculates the average cost per unit?

The _____ method of inventory valuation provides the most realistic amount for the Cost of Goods Sold section of the income statement.​

The _____ method of inventory valuation provides the most realistic amount of ending merchandise inventory in the Current Assets section of the balance sheet.

The _____ method of inventory valuation provides the most realistic amount for the Cost of Goods Sold section of the income statement.