AFC AFC Inventory Management

Question 1

Under the FIFO (First-In, First-Out) inventory method, which units are assumed to be sold first?

Accepted Answer

The oldest purchased units

Answer

FIFO assumes the first units purchased are the first units sold, so ending inventory reflects the most recent costs.

Question 2

Which inventory costing method typically results in the highest net income during a period of rising prices?

Accepted Answer

FIFO

Answer

During rising prices, FIFO assigns lower (older) costs to cost of goods sold, resulting in higher gross profit and net income.

Question 3

A company uses the weighted-average cost method. It has 100 units at $10 and purchases 200 more units at $13. What is the weighted-average cost per unit?

Accepted Answer

$12.00

Answer

Weighted-average cost = Total cost ÷ Total units = [(100×$10)+(200×$13)] ÷ 300 = $3,600 ÷ 300 = $12.00.

Question 4

Under the lower-of-cost-or-net-realizable-value (LCNRV) rule, inventory is written down when:

Accepted Answer

Its net realizable value falls below its recorded cost

Answer

GAAP requires inventory to be reported at the lower of its historical cost or net realizable value, recording a loss when NRV drops below cost.

Question 5

Which inventory system records cost of goods sold and updates inventory balances after each individual sale?

Accepted Answer

Perpetual system

Answer

A perpetual inventory system continuously updates inventory and COGS records with every purchase and sale transaction.

AFC - Accounting Fundamentals Certification Practice Test

AFC - Accounting Fundamentals Certification Practice Test

AFC AFC Inventory Management