Inventory Valuation Methods Explained
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ScribdTranslationsInventory Valuation Methods Explained
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ScribdTranslationsCOSTS AND BUDGETS
CHAPTER 9 – SALOMON NEUMAN (8-939-2348)
PROFESOR: JOSE OCTAVIO CAMARENA R.
Questionnaire
1. Mention the four basic methods to determine prices, or evaluate the
final inventory.
oSpecific cost
oFIFO (first in, first out)
oLIFO (last in, first out)
oWeighted average
Briefly describe the retail method for estimating inventory cost.
final.
The cost and retail price of the products available for sale are used, with
the end of obtaining a relationship between the cost and the selling price. This is then applied
relationship to the final inventory at retail prices (the retail price of the
available stock minus the net sales), to obtain the final inventory at
cost.
3. How is the relationship between cost and selling price obtained when using the
retail method for estimating the final inventory?
A column for cost and another for retail price must be added. In addition, it is
You must note the following information in both columns, except when it comes to
something different.
4. Mention two reasons for using the gross utility method when estimating the
final inventory.
o The accountant uses it as a verification of the physical count of the final inventory.
oIt has an easy job.
5. Describe two ways in which perpetual and periodic systems differ in recording.
of inventories.
In that perpetual inventory maintains an updated balance and the periodic one does not.
El inventario perpetuo no realiza el conteofsico y el periódico so lo hace.
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Salomon Neuman 8-939-2348
6. Mention the differences that exist in the cost of goods sold section of the statement of
results when using periodic and perpetual inventory systems.
In the newspaper, the initial inventory, purchases, as well as the accounts must be closed.
related to purchases against profits and losses.
In the perpetual inventory, it must close against profits and losses.
7. What effect does presenting the financial statements for the current period have?
initial inventory with a value lower than the actual one?
Net profits will be lower.
8. Indicate which inventory valuation method provides a measure of the final inventory.
exact cost of inventory and cost of goods sold.
Specific cost.
9. Explain the advantages and disadvantages of using the cost method.
specific for valuing inventories.
Advantages: It is more useful for companies that buy products to identify with.
facilidad mediante un número especial de serie.
Disadvantages: it is not practical for large organizations that purchase quantities.
important goods during the accounting period, due to the work and the high
costo que representan identficarlas y llevar registro de los costos a pesar de que se
obtain an exact measure of the cost of goods sold in the period
accountable.
10. Explain how inventory information can be used for decision making.
decisions.
It affects non-monetary assets and companies that hold monetary assets.
The effect on non-monetary losses is purchasing power and those that are not.
monetary issues do not affect them as much since, when prices rise, so does the
value of those.
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Salomon Neuman 8-939-2348
True or False?
Contestaverdaderoofalso; si es falso, explica por qué.
1. According to the perpetual inventory system, additional costs for freight are
they register invoices for purchases in the account.
False
2. According to the periodic inventory system, it is necessary to perform closures of the
inventory accounts to write off the initial inventory and increase the balance
[Link]
3. FIFO (first in, first out) is one of the systems used for the
inventory estimation.
True
4. Advances to suppliers must be classified under the inventory item.
specifying that they are advances.
True
The LIFO method is allowed by international standards.
False
6. The cost of sales using FIFO is higher than using LIFO if prices are rising.
False
7. According to the LIFO method, it is assumed that the last goods purchased will be the
first to sell.
True
8. To calculate the value of inventories, the weighted average method
distribute the costs evenly among all the units.
True
The freight in the purchase of merchandise should be considered part of its cost.
True
10. If the inventory turnover is high compared to the industry to which
we belong, it means that we do not run many risks of losses due to
obsolescence
True
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Salomon Neuman 8-939-2348
Relates
1. By using this method, the goods in the final inventory are valued at their
most recent costs.
2. Goods of a company intended for sale.
3. According to this method, the cost of sales is overstated.
4. Goods purchased free on board at the point of shipment.
This method obtains an accurate measure of the cost of goods.
This system always maintains an updated balance of merchandise in stock.
7. Investment that a company has in its short-term assets.
8. According to this method, a uniform cost is determined for all products.
9. With this method, it is necessary to conduct an inventory count at the end of the period.
Goods in transit(4) Discount on transferred documents ()
Inventories(2) PEPS(1)