AFC AFC Inventory Management 3

Question 1

A consignor ships goods to a consignee. Who should include these goods in their inventory?

Accepted Answer

The consignor, because they retain ownership

Answer

Consigned goods remain the property of the consignor until sold; the consignee never takes title to the goods.

Question 2

Which of the following best describes 'net realizable value' of inventory?

Accepted Answer

Expected selling price minus estimated costs to complete and sell

Answer

NRV is the estimated selling price in the ordinary course of business minus any costs necessary to make the sale.

Question 3

A company using LIFO reports inventory of $80,000. Its LIFO reserve is $15,000. What would the inventory balance be under FIFO?

Accepted Answer

$95,000

Answer

FIFO inventory = LIFO inventory + LIFO reserve = $80,000 + $15,000 = $95,000, reflecting the current (higher) cost of inventory.

Question 4

Days' inventory outstanding (DIO) is calculated as:

Accepted Answer

Inventory ÷ COGS × 365

Answer

DIO = (Ending Inventory ÷ COGS) × 365, representing the average number of days it takes to sell inventory.

Question 5

Which of the following would increase the risk of inventory obsolescence?

Accepted Answer

Short product life cycles

Answer

Short product life cycles mean inventory can become outdated quickly, increasing the likelihood it cannot be sold at full price.

AFC - Accounting Fundamentals Certification Practice Test