Question

QUESTION 1

Which one of the following types of costs is excluded from the cost of inventory that is routinely manufactured?

		interest
		raw materials
		normal spoilage
		insurance

QUESTION 2

On July 1, Maxwell Company had 40 units of inventory at a cost of $6 per unit. July purchases and sales were as follows:

	Purchases		Sales
July   5	10 units @ $8	July   4	20 units
12	20 units @ $10	20	12 units
25	10 units @ $16

The cost of goods sold during July was $272. Maxwell must use:

		FIFO
		LIFO perpetual
		weighted average
		LIFO periodic

QUESTION 3

Exhibit 7-1
Edwards Co. purchased raw materials with a cost of $95,000 on March 2, 2014. Credit terms of 3/20, n/60 applied. If Edwards pays for the purchase on March 18, 2014, calculate the amount recorded for inventory on March 2, 2014, using the method given.

Refer to Exhibit 7-1. Edwards uses a perpetual inventory system and the net price method.

		$42,000
		$76,000
		$92,150
		$95,000

QUESTION 4

Eller Company uses a periodic inventory system. Relevant inventory information for the year follows:

1-Jan	Beginning inventory	20 units @ $170 per unit
23-May	Purchased	20 units @ $135 per unit
5-Nov	Purchased	400 units @ $185 per unit
18-Nov	Purchased	100 units @ $195 per unit

At year-end, 50 units remain in inventory. What is the cost of the ending inventory on a LIFO basis?

		$7,950
		$7,100
		$8,750
		$8,450

QUESTION 5

Near the end of 2015, Spruce Co. made the following purchases. The months involved in all cases are December 2015 and January 2016.

		Date	Date	Date	Date
		Goods	Invoice	Goods	Invoice
Amount	FOB	Shipped	Mailed	Rec'd	Rec'd
$1,575	Destination	12/29	1/2	1/5	1/4
2,430	Shipping Point	1/2	12/29	1/4	12/30
1,890	Shipping Point	12/28	1/2	1/3	1/4
2,700	Destination	12/29	12/27	1/2	12/28

What amount of the above purchases should be included in Spruce’s inventory at December 31, 2015?

		$1,575
		$1,890
		$4,320
		$4,575

Answer 1

Ans.1	Option 1st   Interest
	Explanations : Interest and other borrowings are not related to inventory.
Ans.2	Option 3rd Weighted average
	Date	Transactions	Units	Rate	Cost
	1-Jul	Beginning inventory	40	6	240
	5-Jul	Purchase	10	8	80
	12-Jul	Purchase	20	10	200
	25-Jul	Purchase	10	16	160
	Total available for sale		80		680
	Average cost per unit = Total cost of goods available for sale / Total Units available for sale
			680 / 80
			8.5	per unit
	Cost of goods sold = No. of units sold * Average cost per unit
		(20+12) * 8.5
		272
Ans.3	Option 3rd $92150
	Amount recorded for inventory = cost of purchase - Discount allowed
			95000 - (95000*3%)
			92150
	*The payment is made between 20 days so 3% discount rate would be applicable.
Ans.4	Option 1st $7950
	Date	Units	Rate	Cost
	1-Jan	20	170	3400
	23-May	20	135	2700
	5-Nov	10	185	1850
	Ending inventory			7950
	*Using the LIFO method the ending inventory units remain from first purchases.