CH. 6 Student Solutions

CH. 6 Student Solutions - CH. 6 ANSWERS TO QUESTIONS 1....

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CH. 6 ANSWERS TO QUESTIONS 1. Agree. Effective inventory management is frequently the key to successful business operations. Management attempts to maintain sufficient quantities and types of goods to meet expected customer demand. It also seeks to avoid the cost of carrying inventories that are clearly in ex-cess of anticipated sales. 2. Inventory items have two common characteristics: (1) they are owned by the company and (2) they are intended to be sold to customers in the ordinary course of business. 3. Just-in-time inventory management is the practice of manufacturing or purchasing inventory “just-in-time” to fill a sales order. Since inventory quantities are kept at very low amounts, just-in-time management reduces the costs associated with carrying inventory as well as the risk of obsolescence. 4. Taking a physical inventory involves actually counting, weighing, or measuring each kind of inventory on hand. Retailers, such as hardware stores, generally have thousands of different items to count. This is normally done when the store is closed. Sara will probably count items and mark the quantity, description, and inventory number on prenumbered inventory tags. 6. Inventoriable costs are $3,015 (invoice cost $3,000 + freight charges $75 - purchase discounts $60). 11. (a) FIFO, (b) Average-cost, (c) LIFO. 13. Azenabor Corporation may experience severe cash shortages if this policy continues. All of its net income is being paid out as dividends, yet some of the earnings must be reinvested in inventory to maintain inventory levels. Some earnings must be reinvested because net income is computed with cost of goods sold based on older, lower costs while the inventory must be replaced at current, higher costs. Because of this factor, net income under FIFO is sometimes referred to as including “phantom profits.” In addition, Azenabor is also depleting cash more quickly under FIFO because FIFO results in higher income tax payments. 19. Lower-of-cost-or-market can be applied after any of the cost flow assumptions has been used, including LIFO, FIFO, average-cost, or specific identification. 20.
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This note was uploaded on 11/08/2011 for the course ACC 101 taught by Professor Scottcazzad during the Spring '11 term at Jefferson College.

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CH. 6 Student Solutions - CH. 6 ANSWERS TO QUESTIONS 1....

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