Financial Accounting Chapter 6 Homework Short Answer 1. Why is it important to periodically take a physical inventory when using a perpetual inventory system? 2. What insights can be gained from inventory ratio analysis, such as inventory turnover ratio and number of days' sales in inventory ratio? 3. If inventory is being valued at cost and the price level is decreasing, which of the three methods of costing (FIFO, LIFO, or weighted average) will yield a. the highest inventory cost? b. the lowest inventory cost? c. the highest gross profit? d. the lowest gross profit?

Short Answer 1. Why is it important to periodically take a physical inventory when using a perpetual inventory system? 2. What insights can be gained from inventory ratio analysis, such as inventory turnover ratio and number of days' sales in inventory ratio? 3. If inventory is being valued at cost and the price level is decreasing which of the three methods of costing (FIFO, UFO, or weighted averoge) will yield a. the highest inventory cost? b. the lowest inventory cost? c. the highest gross profit? d. the lowest gross profit? 4. A manufacturer shipped merchandise to a retailer on a consignment basis. If the merchandise is unsold at the end of the period, in whose inventory should the merchandise be included? 5. Describe the goal of the lower-of-cost-or-market concept. 6. What type of issues would arise that might cause inventory errors