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Basic Inventory Management MCQ

1. Holding high levels of inventory result in inventory carrying costs and stockout costs.

High; low

Increase

Twelve

19; 24

Answer

Correct Answer: High; low

Note: This Question is unanswered, help us to find answer for this one

2.
The Cost of Goods Sold can be defined as __________________.

Beginning Inventory + Inventory Purchases + Costs of Production - Ending Inventory = COGS

Ending Inventory = COGS

Beginning Inventory = COGS

Inventory Purchases = COGS

Answer

Correct Answer: Beginning Inventory + Inventory Purchases + Costs of Production - Ending Inventory = COGS

Note: This Question is unanswered, help us to find answer for this one

3.
The term "indirect costs" refers to _______________________.

costs not directly incurred in the manufacturing process but which are necessary for the operation

costs with no specific amount

materials costs

finished goods

Answer

Correct Answer: costs not directly incurred in the manufacturing process but which are necessary for the operation

Note: This Question is unanswered, help us to find answer for this one

4.
The selling price less the cost of marketing equals the __________________.

net income

operating expense

net realizable value

cash flow

Answer

Correct Answer: net realizable value

Note: This Question is unanswered, help us to find answer for this one

5.

Budgetary control systems involve ______________.

Estimation of control

Setting of targets

Monitoring of performance

Preparation of budgets

Answer

Correct Answer: Monitoring of performance

Note: This Question is unanswered, help us to find answer for this one

6.

The term "cycle counting" refers to ___________________.

the inventory count performed by a bicycle store

a once-per-year inventory count

consistently counting selected inventory items throughout the year

a type of inventory counting performed only by auto manufacturers

Answer

Correct Answer: a once-per-year inventory count

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7.
Which of the following is the correct equation for determining the cost of goods sold?

Beginning Inventory - Purchases + Ending Inventory = Cost of Goods Sold

Beginning Inventory + Purchases - Ending Inventory = Cost of Goods Sold

Beginning Inventory + Purchases + Ending Inventory = Cost of Goods Sold

None of the above

Answer

Correct Answer: Beginning Inventory + Purchases - Ending Inventory = Cost of Goods Sold

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8.
Which of the following is not a product cost?

Depreciation on plant machinery

Salary of the vice president of production

Insurance associated with the delivery equipment

Property taxes associated with the factory building

Answer

Correct Answer: Insurance associated with the delivery equipment

Note: This Question is unanswered, help us to find answer for this one

9.
Which of the following is not a period expense?

Salary of the vice president of sales

Salaries of factory custodial employees

Salaries of administrative clerical personnel

Salaries of employees who deliver the finished product to customers

Answer

Correct Answer: Salaries of factory custodial employees

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10.
Why wouldn't a company purchase enough inventory to last for several months at a time?

The per-unit cost is higher.

Suppliers cannot meet the demand.

There is no reason not to do so

Companies want to manage their cash effectively.

Answer

Correct Answer: The per-unit cost is higher.

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11.
Which type of accountant works most closely with inventory?

Tax accountant

General accountant

AP clerk

Cost accountant

Answer

Correct Answer: Cost accountant

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12.
Which of the following is NOT an acceptable method for determining the cost of inventory?

FIFO method

LIFO method

Specific identification method

All of the above are acceptable methods for determining the cost of inventory.

Answer

Correct Answer: All of the above are acceptable methods for determining the cost of inventory.

Note: This Question is unanswered, help us to find answer for this one

13.
Which of the following is NOT a factor when applying the lower of the cost method or the market valuation method?

Replacement cost

Net realizable value

Standard cost

Acquisition cost

Answer

Correct Answer: Standard cost

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14.
Which of the following is NOT a characteristic of the use of current value bases to determine inventory values and cost of goods sold?

Current value basis shows current information that can be more useful.

The information is generally easier to obtain.

The information may be difficult to audit

None of the above

Answer

Correct Answer: None of the above

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15.
Which of the following is NOT a characteristic of the LIFO method?

During periods of rising prices, LIFO produces higher balance-sheet valuation of inventory than FIFO.

During periods of rising prices, LIFO produces lower net income than FIFO.

LIFO allows managers to manipulate net income.

All of the above are characteristics of the LIFO method.

Answer

Correct Answer: During periods of rising prices, LIFO produces higher balance-sheet valuation of inventory than FIFO.

Note: This Question is unanswered, help us to find answer for this one

16.
Which of the following inventory systems is designed so that the cost of withdrawals is recorded at the time assets are withdrawn from inventory?

Periodic inventory system

Perpetual inventory system

LIFO

FIFO

Answer

Correct Answer: Perpetual inventory system

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17.
Which of the following inventory methods typically results in a lower net income?

LIFO

Average cost

FIFO

Standard cost

Answer

Correct Answer: Standard cost

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18.
Which of the following inventory cost flow assumptions is physically appropriate for liquid or other types of products for which distinguishing different lots is difficult?

Specific cost

Weighted average method

Depletion

Lot costing

Answer

Correct Answer: Weighted average method

Note: This Question is unanswered, help us to find answer for this one

19.
Which of the following costs would not be included as an element of manufacturing overhead?

Depreciation on factory machinery

Insurance on factory building

Raw materials

Supervisory labor

Answer

Correct Answer: Raw materials

Note: This Question is unanswered, help us to find answer for this one

20.
Which of the following cost flow assumptions conforms to most actual physical inventory flows?

FIFO method

LIFO method

Weighted average method

Replacement cost method

Answer

Correct Answer: FIFO method

Note: This Question is unanswered, help us to find answer for this one

21.
Which of the following concepts states that if a firm uses a LIFO assumption in its income tax return, it must also use LIFO in its financial reports to shareholders?

FIFO rule

IRS tax code

LIFO conformity rule

GAAP

Answer

Correct Answer: LIFO conformity rule

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22.
The term "safety stock" _________________.

refers to the minimum stock that a firm must have on hand

is the same as JIT Inventory

refers to a "buffer stock" that is kept on hand so the firm does not run out of an item if there is an increase in demand

refers to the inventory of safety-related items

Answer

Correct Answer: refers to a "buffer stock" that is kept on hand so the firm does not run out of an item if there is an increase in demand

Note: This Question is unanswered, help us to find answer for this one

23.
The term "distressed inventory" refers to _________________.

inventory that must go through a stress test

inventory that is no longer useful or saleable

raw materials

finished goods

Answer

Correct Answer: inventory that is no longer useful or saleable

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24.
The procedure whereby a manufacturing firm charges the fixed production cost to the period rather than assigning it as a cost of the product is called ____________________.

net income

operating expense

net realizable value

cash flow

Answer

Correct Answer: net realizable value

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25.
The procedure whereby a manufacturing firm charges the fixed production cost to the period rather than assigning it as a cost of the product is called ____________________.

variable (direct) costing

indirect costing

average costing

specific costing

Answer

Correct Answer: variable (direct) costing

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26.

The primary benefit of the specific identification method of inventory costing is that ________________.

it results in the highest net income

it results in the lowest tax liability

revenues can be correctly matched to costs

it is the easiest to track

Answer

Correct Answer: revenues can be correctly matched to costs

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27. The portion of merchandise that is available for sale or use and that is allocated to the current period's usage is called the _______________.

total inventory

raw materials

cost of goods sold

finished goods

Answer

Correct Answer: cost of goods sold

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28. The inventories of a manufacturing company include __________________.

finished goods

raw materials

work in process

All of the above

Answer

Correct Answer: All of the above

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29. The difference between the selling price of an item and its replacement cost at the time of sale is called the _____________________.

operating margin

realized holding gain

unrealized holding gain

gross margin

Answer

Correct Answer: operating margin

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30. The difference between cost of goods sold based on replacement cost and cost of goods sold based on acquisition cost is the ___________________.

cost of goods sold

realized holding gain

net income

operating expense

Answer

Correct Answer: realized holding gain

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31. The account title and the term that designates acquisition of merchandise during the accounting period is called ___________________ .

Selling

Purchase

Marketing

Costing

Answer

Correct Answer: Purchase

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32. The _____________ is the amount a firm would have to pay to acquire a replacement for an inventory item at that a particular time.

replacement cost

net realizable value

standard cost

market selling value

Answer

Correct Answer: replacement cost

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33. LIFO refers to the cost flow for units sold. The parallel description for ending inventory is ____________.

FISH

FIFO

average cost

specific identification

Answer

Correct Answer: FISH

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34.

Inventory turnover can be calculated using _______________.

Average Inventory/Cost of Goods Sold

Purchases/Sales

Net Income/Sales

Cost of Goods Sold/Average Inventory

Answer

Correct Answer: Cost of Goods Sold/Average Inventory

Note: This Question is unanswered, help us to find answer for this one

35.

From an international perspective, which of the following statements is NOT accurate?

Firms in most countries use FIFO and weighted average cost flow assumptions.

All major developed countries require the lower of cost or market method.

Few countries, except the U.S. and Japan, allow the LIFO method.

All of the statements are accurate.

Answer

Correct Answer: All of the statements are accurate.

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36.

For a bakery, flour would be considered _________________.

a work in process

a raw material

a finished good

a cost of goods sold

Answer

Correct Answer: a raw material

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37.

During periods of rising prices, which of the following cost flow assumptions produces the highest reported net income?

FIFO method

LIFO method

Weighted average method

All methods produce the same net result.

Answer

Correct Answer: FIFO method

Note: This Question is unanswered, help us to find answer for this one

38.

At which of the following levels are indirect costs added to inventory?

Raw materials

Finished goods

LIFO

FIFO

Answer

Correct Answer: Finished goods

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39.

A predetermined estimate of what each item of manufactured inventory should cost, based on past experience and planned production methods, is called the __________________.

replacement cost

net realizable value

standard cost

acquisition cost

Answer

Correct Answer: standard cost

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40.

Which of the following is the valuation basis that departs from cost when the utility of the goods is no longer as great as their cost?

Average cost

Weighted cost

Lower of cost or market

Lot cost

Answer

Correct Answer: Lower of cost or market

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41.

FIFO refers to the cost of the units sold. The parallel description for ending inventory is ____________.

LIFO

specific cost

average cost

LISH

Answer

Correct Answer: LISH

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42.

Which of the following is a predetermined estimate of what each item of manufactured inventory should cost based on past cost and planned production methods?

Standard cost

Average cost

LIFO

FIFO

Answer

Correct Answer: Standard cost

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43.

Which of the following is NOT a valid characteristic of variable costing (direct costing) for inventories for manufacturing firms?

Production costs are classified into variable manufacturing costs and fixed manufacturing costs.

The use of the owner's financial and income tax statements is generally accepted.

Product costs contain only variable costs.

Unusual patterns of income do not result because the number of units produced differs from the number of units sold.

Answer

Correct Answer: The use of the owner's financial and income tax statements is generally accepted.

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44.

If the ______________ is used for income tax purposes, the Internal Revenue Service requires its use for income determination for financial reports to owners.

FIFO method

LIFO method

Weighted average method

Replacement cost method

Answer

Correct Answer: LIFO method

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45.

The ______________________ is the estimated selling price of the inventory less any estimated costs for making the item ready for sale and actually selling it.

replacement cost

standard cost

net realizable value

market selling value

Answer

Correct Answer: net realizable value

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46.

Which of the following is a method for assigning cost in which a firm can physically match individual units sold with a specific purchase?

Average cost

Weighted cost

COGS

Specific identification

Answer

Correct Answer: Specific identification

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47.

Variable costing (direct costing) is acceptable for use in determining inventory cost by _________________.

the Financial Accounting Standards Board

the Internal Revenue Service

either a or b

neither a nor b

Answer

Correct Answer: neither a nor b

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48.

Which of the following cost flow assumptions assigns the costs of the earliest units acquired to the withdrawals, and the costs of the most recent acquisitions to the ending inventory?

FIFO

LIFO

Average costing

Weighted costing

Answer

Correct Answer: FIFO

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49.

Which of the following concepts states that gains (or losses) caused by increases (or decreases) in the market value of assets should not appear in the income until a firm sells the particular assets?

Net income concept

Weighted average

LIFO

Realization convention

Answer

Correct Answer: Realization convention

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50.

Which of the following entails carrying units in inventory at their acquisition costs until they are sold?

JIT inventory

FIFO

Acquisition cost basis

LIFO

Answer

Correct Answer: Acquisition cost basis

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51.

At the beginning of the year, XYZ reported balances in Work in Process Inventory and Finished Goods Inventory, respectively, of $174,000 and $102,000. During the year, materials, labor, and overhead costs totaling $678,000 were added to the production. Products costing $612,000 were transferred to finished goods during the year. At the end of the year, the balance in Finished Goods Inventory is $72,000.

What is the ending balance in the Work in Process Inventory account?

$240,000

$222,000

$102,000

$144,000

Answer

Correct Answer: $240,000

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52.

The term "anticipation stock" refers to _____________________.

JIT inventory

normal inventory on hand

finished goods

additional inventory built up for periods when demand increases

Answer

Correct Answer: additional inventory built up for periods when demand increases

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53.

Which of the following is the correct sequence of cost flows for a manufacturing firm?

Work in Process, Finished Goods, Cost of Goods Sold, Raw Materials

Raw Materials, Work in Process, Finished Goods, Cost of Goods Sold

Cost of Goods Sold, Raw Materials, Work in Process, Finished Goods

Finished Goods, Work in Process, Raw Materials, Cost of Goods Sold

Answer

Correct Answer: Raw Materials, Work in Process, Finished Goods, Cost of Goods Sold

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54.

The procedure in which a manufacturing firm includes all production costs as a cost of the product is called _________________.

standard costing

full absorption costing

average costing

weighted costing

Answer

Correct Answer: full absorption costing

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55.

The term "economy of scale" refers to __________________.

economic equilibrium

the lower per-unit costs that result from buying in bulk

a measuring tool for goods with mass

the optimal order quantity

Answer

Correct Answer: the lower per-unit costs that result from buying in bulk

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56.

Losses from inventory due to theft, evaporation, and waste are called ______________.

average cost

realization

shrinkage

costing

Answer

Correct Answer: shrinkage

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57.

Which of the following cost flow assumptions leads to the deferral of income taxes during periods of rising prices?

FIFO

LIFO

Specific item

Average cost

Answer

Correct Answer: LIFO

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58.

A stock of goods owned by a firm and held for sale to customers is called _____________.

cost of goods sold

FIFO

inventory

LIFO

Answer

Correct Answer: inventory

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59.

For an auto manufacturer, steel would be considered ___________________.

COGS

WIP

a finished good

a raw material

Answer

Correct Answer: a raw material

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60.

The ________________ is the difference between the current replacement cost of the ending inventory and its acquisition cost.

operating margin

realized holding gain

unrealized holding gain

gross margin

Answer

Correct Answer: unrealized holding gain

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61.

it results in higher net income

Beginning Inventory + Inventory Purchases + Costs of Production - Ending Inventory = COGS

Ending Inventory = COGS

Beginning Inventory = COGS

Inventory Purchases = COGS

Answer

Correct Answer: Beginning Inventory + Inventory Purchases + Costs of Production - Ending Inventory = COGS

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62.

The primary benefit of cycle counting is that __________________.

it's less work than an annual count

the IRS prefers it

it eliminates the need for a year-end count of the entire inventory

it results in higher net income

Answer

Correct Answer: the IRS prefers it

Note: This Question is unanswered, help us to find answer for this one

63.

The term "inventory turnover" refers to ______________________.

the rotation of inventory among various locations

a ratio used to determine how many days on average it takes to turn inventory into sales

a form of economy of scale

the same thing as FIFO

Answer

Correct Answer: a ratio used to determine how many days on average it takes to turn inventory into sales

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64.

Goods held for sale by a manufacturing concern are called _______________.

WIP

cost of goods sold

finished goods

raw materials

Answer

Correct Answer: finished goods

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65.

Which of the following terms sometimes denotes the realized holding gain on inventory?

COGS

FIFO

LIFO

Inventory profit

Answer

Correct Answer: Inventory profit

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66.

The Work in Process account would not be debited for which of the following items?

Direct labor costs

Manufacturing overhead costs

Selling and administrative costs

Costs of raw materials put into production

Answer

Correct Answer: Selling and administrative costs

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67.

Stored materials that will eventually become part of the goods to be produced are called _______.

raw materials

finished goods

WIP

COGS

Answer

Correct Answer: raw materials

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68.

The excess of FIFO or current cost over LIFO cost of inventories is called _________________.

inventory valuation allowance

cost of goods sold

net income

profit margin

Answer

Correct Answer: inventory valuation allowance

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69.

Which of the following is NOT an example of distressed inventory?

Food with an expiration date that has passed

Two-year-old cell phones

Automobile tires

Daily newspaper

Answer

Correct Answer: Automobile tires

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70.

The term "JIT Inventory" means _________________.

Just Info Technology Inventory

Just In Time Inventory

Juice Is Tasty Inventory

Job Info Tech Inventory

Answer

Correct Answer: Just In Time Inventory

Note: This Question is unanswered, help us to find answer for this one

71.

Which of the following is the contra account title used to record discounts for early payments for merchandise?

Purchase discounts

Accounts receivable discounts

Trade discounts

Cost of goods sold

Answer

Correct Answer: Purchase discounts

Note: This Question is unanswered, help us to find answer for this one

72.

At the beginning of the year, XYZ reported balances in Work in Process Inventory and Finished Goods Inventory, respectively, of $174,000 and $102,000. During the year, materials, labor, and overhead costs totaling $678,000 were added to the production. Products costing $612,000 were transferred to finished goods during the year. At the end of the year, the balance in Finished Goods Inventory is $72,000.

What amount should XYZ report as Cost of Goods Sold for the year?

$714,000

$582,000

$678,000

$642,000

Answer

Correct Answer: $642,000

Note: This Question is unanswered, help us to find answer for this one

73.

In cash flow statements, reductions in inventory ___________________.

are treated differently than other reductions in current assets

appear as an addition to net income in deriving cash flow from operations

appear in the financing section

appear in the investing section

Answer

Correct Answer: appear as an addition to net income in deriving cash flow from operations

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74.

Conventionally, accountants refer to the difference between sales and cost of goods sold as the ______________.

operating margin

realized holding gain

unrealized holding gain

gross margin

Answer

Correct Answer: gross margin

Note: This Question is unanswered, help us to find answer for this one

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Basic Inventory Management MCQ

1. Holding high levels of inventory result in ____ inventory carrying costs and ____ stockout costs.

2. The Cost of Goods Sold can be defined as __________________.

3. The term "indirect costs" refers to _______________________.

4. The selling price less the cost of marketing equals the __________________.

5. Budgetary control systems involve ______________.

6. The term "cycle counting" refers to ___________________.

7. Which of the following is the correct equation for determining the cost of goods sold?

8. Which of the following is not a product cost?

9. Which of the following is not a period expense?

10. Why wouldn't a company purchase enough inventory to last for several months at a time?

11. Which type of accountant works most closely with inventory?

12. Which of the following is NOT an acceptable method for determining the cost of inventory?

13. Which of the following is NOT a factor when applying the lower of the cost method or the market valuation method?

14. Which of the following is NOT a characteristic of the use of current value bases to determine inventory values and cost of goods sold?

15. Which of the following is NOT a characteristic of the LIFO method?

16. Which of the following inventory systems is designed so that the cost of withdrawals is recorded at the time assets are withdrawn from inventory?

17. Which of the following inventory methods typically results in a lower net income?

18. Which of the following inventory cost flow assumptions is physically appropriate for liquid or other types of products for which distinguishing different lots is difficult?

19. Which of the following costs would not be included as an element of manufacturing overhead?

20. Which of the following cost flow assumptions conforms to most actual physical inventory flows?

21. Which of the following concepts states that if a firm uses a LIFO assumption in its income tax return, it must also use LIFO in its financial reports to shareholders?

22. The term "safety stock" _________________.

23. The term "distressed inventory" refers to _________________.

24. The procedure whereby a manufacturing firm charges the fixed production cost to the period rather than assigning it as a cost of the product is called ____________________.

25. The procedure whereby a manufacturing firm charges the fixed production cost to the period rather than assigning it as a cost of the product is called ____________________.

26.

27.

The portion of merchandise that is available for sale or use and that is allocated to the current period's usage is called the _______________.

28.

The inventories of a manufacturing company include __________________.

29.

The difference between the selling price of an item and its replacement cost at the time of sale is called the _____________________.

30.

The difference between cost of goods sold based on replacement cost and cost of goods sold based on acquisition cost is the ___________________.

31.

The account title and the term that designates acquisition of merchandise during the accounting period is called ___________________ .

32.

The _____________ is the amount a firm would have to pay to acquire a replacement for an inventory item at that a particular time.

33.

LIFO refers to the cost flow for units sold. The parallel description for ending inventory is ____________.

34.

35.

36.

37.

38.

39.

40.

41.

42.

43.

44.

45.

46.

47.

48.

49.

50.

51.

52.

53.

54.

55.

56.

57.

58.

59.

60.

61.

62.

63.

64.

65.

66.

67.

68.

69.

70.

71.

72.

1. Holding high levels of inventory result in inventory carrying costs and stockout costs.

2.
The Cost of Goods Sold can be defined as __________________.

3.
The term "indirect costs" refers to _______________________.

4.
The selling price less the cost of marketing equals the __________________.

5.

Budgetary control systems involve ______________.

6.

The term "cycle counting" refers to ___________________.

7.
Which of the following is the correct equation for determining the cost of goods sold?

8.
Which of the following is not a product cost?

9.
Which of the following is not a period expense?

10.
Why wouldn't a company purchase enough inventory to last for several months at a time?

11.
Which type of accountant works most closely with inventory?

12.
Which of the following is NOT an acceptable method for determining the cost of inventory?

13.
Which of the following is NOT a factor when applying the lower of the cost method or the market valuation method?

14.
Which of the following is NOT a characteristic of the use of current value bases to determine inventory values and cost of goods sold?

15.
Which of the following is NOT a characteristic of the LIFO method?

16.
Which of the following inventory systems is designed so that the cost of withdrawals is recorded at the time assets are withdrawn from inventory?

17.
Which of the following inventory methods typically results in a lower net income?

18.
Which of the following inventory cost flow assumptions is physically appropriate for liquid or other types of products for which distinguishing different lots is difficult?

19.
Which of the following costs would not be included as an element of manufacturing overhead?

20.
Which of the following cost flow assumptions conforms to most actual physical inventory flows?

21.
Which of the following concepts states that if a firm uses a LIFO assumption in its income tax return, it must also use LIFO in its financial reports to shareholders?

22.
The term "safety stock" _________________.

23.
The term "distressed inventory" refers to _________________.

24.
The procedure whereby a manufacturing firm charges the fixed production cost to the period rather than assigning it as a cost of the product is called ____________________.

25.
The procedure whereby a manufacturing firm charges the fixed production cost to the period rather than assigning it as a cost of the product is called ____________________.