Intermediate Financial Management (MindTap Course List)
12th Edition
ISBN: 9781285850030
Author: Eugene F. Brigham, Phillip R. Daves
Publisher: Cengage Learning
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Chapter 23, Problem 9MC
Summary Introduction
Case summary:
Person A the
She planned to use an example of Company’s “big ticket” items which is a customized computer microchip used in the company’s laptop. She planned to start the discussion by explaining some basic inventory concept. She asked person X to help her by way of answering the questions.
Characters in the case:
Person A- Financial manager of Company W
Person FW- CEO of the company
Person X-Assistant of person A
To determine: Whether EOQ model can be used in the given situation
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Indicate by a (1), (2), or (0) whether each of the following events wouldprobably cause average annual inventory holdings to rise, fall, or be affectedin an indeterminate manner:b. We change from producing just-in-time to meet seasonaldemand to steady, year-round production. __________
Interpretation of the inventory holding period depends on the industry in which a business operates. An increase in inventory days might be explained by which of the following?
a) Seasonal variations in demand leading to a dramatic increase in the volume of sales of finished goods
b) Supply problems arising from difficulties in purchasing raw materials from suppliers
c) A new policy to reduce the level of inventory to reduce the associated costs of storage
and insurance
d) A business deliberately building up inventories prior to a large order
When inventory costs are falling over time and inventory volumes are steady or increasing, which of the following inventory measurement systems gives the lowest profit figures for the first year of trading?
Chapter 23 Solutions
Intermediate Financial Management (MindTap Course List)
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- Under the periodic inventory system, what account is credited when an estimate is made for sales made this year, but expected to be returned next year? (a) Merchandise Inventory (b) Customer Refunds Payable (c) Sales (d) Sales Returns and Allowancesarrow_forwardUnder the periodic inventory system, what account is debited when an estimate is made for the cost of merchandise inventory sold this year, but expected to be returned next year? (a) Estimated Returns Inventory (b) Sales Returns and Allowances (c) Merchandise Inventory (d) Customer Refunds Payablearrow_forwardIf Barcelona Companys ending inventory was actually $122,000, but the cost of consigned goods, with a cost value of $20,000 were accidentally included with the company assets, when making the year-end inventory adjustment, what would be the impact on the presentation of the balance sheet and income statement for the year that the error occurred, if any?arrow_forward
- What are the advantages and disadvantages of each of the following for a company that has greatly fluctuating sales during the year? a. A stable production policy b. A stable inventory policyarrow_forwardWhich of the following is an advantage of the periodic inventory system? A. frequent physical inventory counts B. cost prohibitive C. time consuming D. real-time information for managersarrow_forwardUnder the periodic inventory system, what account is debited when an estimate is made for sales made this year, but expected to be returned next year? (a) Sales Returns and Allowances (b) Merchandise Inventory (c) Customer Refunds Payable (d) Salesarrow_forward
- Which of the following indicates a positive trend for inventory management? A. increasing number of days sales in inventory ratio B. increasing inventory turnover ratio C. increasing cost of goods sold D. increasing sales revenuearrow_forwardIf a group of inventory items costing $3,200 had been double counted during the year-end inventory count, what impact would the error have on the following inventory calculations? Indicate the effect (and amount) as either (a) none, (b) understated $______, or (c) overstated $______. Table 10.2arrow_forwardAlternative Inventory Methods Nevens Company uses a periodic inventory system. During November, the following transactions occurred: Required: 1. Compute the cost of goods sold for November and the inventory at the end of November for each of the following cost flow assumptions: a. FIFO b. LIFO c. Average cost 2. Next Level What can you conclude about the effects of the inventory cost flow assumptions on the financial statements?arrow_forward
- Assume that the ending inventory of a merchandising firm is overstated by $40,000. a. By how much and in what direction (overstated or understated) will the firms cost of goods be misstated? b. If this error is not corrected, what effect will it have on the subsequent period's operating income? c. If this error is not corrected, what effect will it have on the total operating income of the two periods (the period in which there is an error and the subsequent period) combined?arrow_forwardWhy do companies that use perpetual inventory systems alsotake an annual physical inventory? When is this physicalinventory usually taken? Why?arrow_forwardCompanies can use various methods to determine the cost of inventory, including FIFO, LIFO, and average cost. In a period in which the cost of inventory is rising, which of the following statements is true? The LIFO method will result in the lowest income tax expense. The LIFO method will result in the highest inventory balance at year-end. The average cost method will result in the highest net income. The LIFO method will result in the lowest cost of goods sold. The average cost method will result in the lowest inventory balance at year-end. The average cost method will result in the highest inventory balance at year-end. The FIFO method will result in the lowest net income. None of the listed choices are correct.arrow_forward
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