31.The days' sales in inventory ratio is computed by dividing ending inventory by cost of goods sold and multiplying the result by 365.
32.The simple rule for inventory turnover is that a low ratio is preferable.
33.It can be expected that companies selling perishable goods have a higher inventory turnover than companies selling nonperishable goods.
34.A company's cost of goods sold was $15,500 and its average merchandise inventory was $4,500. Its inventory turnover equals 3.4.
Inventory Turnover = Cost of Goods Sold/Average Merchandise Inventory
Inventory Turnover = $15,500/$4,500 = 3.4
35.Underwood had cost of goods sold of $8 million and its ending inventory was $2 million. Therefore, its days' sales in inventory equals 25 days.
Days' Sales in Inventory = Ending Inventory/Cost of Goods Sold * 365
Days' Sales in Inventory = $2/$8 * 365 = 91 days
36.Determining the unit costs assigned to inventory items is one of the most important decisions in accounting for inventory.
37.When units are purchased at different costs over time, determining the cost per unit assigned to inventory items is simple.
38.LIFO assumes that inventory costs flow in the order incurred.
39.The assignment of costs to cost of goods sold and inventory using weighted average usually yields different results depending on whether a perpetual or periodic system is used.
40.The FIFO inventory method assumes that costs for the latest units purchased are the first to be charged to the cost of goods sold.