Concept explainers
Determining inventory costing methods
Ward Hard ware does not expect costs to change dramatically and wants to use an inventory costing method that averages cost changes.
Requirements
1. Which inventory costing method would best meet Ward’s goal?
2. Assume Ward wanted to expense out the newer purchases of goods instead. Which inventory costing method would best meet that need?
Want to see the full answer?
Check out a sample textbook solutionChapter 6 Solutions
Horngren's Financial & Managerial Accounting, The Managerial Chapters, Student Value Edition Plus MyLab Accounting with Pearson eText -- Access Card Package (6th Edition)
Additional Business Textbook Solutions
Financial Accounting, Student Value Edition (4th Edition)
Financial Accounting
Construction Accounting And Financial Management (4th Edition)
Cost Accounting (15th Edition)
Horngren's Financial & Managerial Accounting, The Managerial Chapters (6th Edition)
Principles of Accounting Volume 2
- Which of the following is a disadvantage of the perpetual inventory system? A. Inventory information is in real-time. B. Inventory is automatically updated. C. It allows managers to make current decisions about purchases, stock, and sales. D. It is cost-prohibitive.arrow_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_forwardWhy are perpetual inventory systems more expensive to operate than periodic inventory systems? What conditions justify the additional cost of a perpetual inventory system?arrow_forward
- Inventory Costing When Inventory Quantities Are Small A number of companies have adopted a just-in-time procedure for acquiring inventory. These companies have arrangements with their suppliers that require the supplier to deliver inventory just as the company needs the goods. As a result, just-in-time companies keep very little inventory on hand. Required: Once a company has switched to the just-in-time procedure and has little inventory, should the inventory costing method (LIFO or FIFO) affect cost of goods sold?arrow_forwardExplain how lowering inventory produces better products, lower prices, and better responsiveness to customer needs.arrow_forwardWhy do companies adopt the LIFO method of inventory costing? Your discussion should include the effects on the income statement and balance sheet.arrow_forward
- 2. Shepherd Cycles does not expect prices to change dramatically and wants to use a method that averages price changes. B. Which inventory method would best meet Shepherd's goal? Enter answer here. C. What if Shepherd wanted to expense out the newer purchases of goods instead? Which inventory would best meet that need? Enter answer here.arrow_forwardProponents of the LIFO inventory cost flow assumption argue that this costing method is superior to the alternatives because it results in better matching of revenue and expense. Required: a. Under LIFO, the release of the most recent purchase costs to the Cost of Goods Sold account results in better matching of revenue and expense. b. What is the impact on the carrying value of inventory in the balance sheet when LIFO rather than FIFO is used during periods of inflation? a. b. It understates the value of inventory in the balance sheet. It overstates the value of inventory in the balance sheet.arrow_forwardThe cost method that will yield an ending inventory value that is somewhere between possible high and low costs (prices) using traditional costing methods is the a.weighted average inventory cost method. b.LIFO inventory cost method. c.specific identification inventory cost method. d.FIFO inventory cost method.arrow_forward
- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage LearningPrinciples of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax CollegeCornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning
- Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage LearningPrinciples of Cost AccountingAccountingISBN:9781305087408Author:Edward J. Vanderbeck, Maria R. MitchellPublisher:Cengage Learning