Financial Accounting- Tools for Business Decision Making - Chapter 6 Exam Questions Answered
Correctly (Graded A+)
Inventory turnover - Answers A ratio that indicates the liquidity of inventory by measuring the number
of times average inventory is sold during the period; computed by dividing cost of goods sold by the
average inventory during the period.
Days in inventory - Answers Measure of the average number of days inventory is held; calculated as 365
divided by inventory turnover.
Average-cost method - Answers An inventory costing method that uses the weighted-average unit cost
to allocate the cost of goods available for sale to ending inventory and cost of goods sold.
Consigned goods - Answers Goods held for sale by one party although ownership of the goods is
retained by another party.
Current replacement cost - Answers The cost of purchasing the same goods at the present time from the
usual suppliers in the usual quantities.
FInished goods inventory - Answers Manufactured items that are completed and ready for sale.
First in, first out (FIFO) method - Answers An inventory costing method that assumes that the earliest
goods purchased are the first to be sold.
FOB destination - Answers Freight terms indicating that ownership of goods remains with the seller until
the goods reach the buyer.
FOB shipping point - Answers Freight terms indicating that ownership of goods passes to the buyer when
the public carrier accepts the goods from the seller.
Just-in-time (JIT) inventory - Answers Inventory system in which companies manufacture or purchase
goods only when needed.
Last-in, first-out (LIFO) method - Answers An inventory costing method that assumes that the latest units
purchased are the first to be sold.
LIFO Reserve - Answers For a company using LIFO, the difference between inventory reported using LIFO
and inventory using FIFO.
Lower-of-cost-or-market (LCM) - Answers A basis whereby inventory is stated at the lower of either its
cost or its market value as determined by current replacement cost.
Raw materials - Answers Basic goods that will be used in production but have not yet been placed in
production.
Correctly (Graded A+)
Inventory turnover - Answers A ratio that indicates the liquidity of inventory by measuring the number
of times average inventory is sold during the period; computed by dividing cost of goods sold by the
average inventory during the period.
Days in inventory - Answers Measure of the average number of days inventory is held; calculated as 365
divided by inventory turnover.
Average-cost method - Answers An inventory costing method that uses the weighted-average unit cost
to allocate the cost of goods available for sale to ending inventory and cost of goods sold.
Consigned goods - Answers Goods held for sale by one party although ownership of the goods is
retained by another party.
Current replacement cost - Answers The cost of purchasing the same goods at the present time from the
usual suppliers in the usual quantities.
FInished goods inventory - Answers Manufactured items that are completed and ready for sale.
First in, first out (FIFO) method - Answers An inventory costing method that assumes that the earliest
goods purchased are the first to be sold.
FOB destination - Answers Freight terms indicating that ownership of goods remains with the seller until
the goods reach the buyer.
FOB shipping point - Answers Freight terms indicating that ownership of goods passes to the buyer when
the public carrier accepts the goods from the seller.
Just-in-time (JIT) inventory - Answers Inventory system in which companies manufacture or purchase
goods only when needed.
Last-in, first-out (LIFO) method - Answers An inventory costing method that assumes that the latest units
purchased are the first to be sold.
LIFO Reserve - Answers For a company using LIFO, the difference between inventory reported using LIFO
and inventory using FIFO.
Lower-of-cost-or-market (LCM) - Answers A basis whereby inventory is stated at the lower of either its
cost or its market value as determined by current replacement cost.
Raw materials - Answers Basic goods that will be used in production but have not yet been placed in
production.
