Units Acquired at Cost Units Sold at Retail 1Jan Beg inventory 140 units 700 980 10Jan ID: 786653
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Slide1
Chapter 5
Four Methods of Inventory Costing
Slide2Units Acquired, at Cost Units Sold, at Retail 1-Jan Beg. inventory140units @ $ 7.00 = $ 980 10-Jan Sales 90units @ $ 15.00 20-Jan Purchase220units @ $ 6.00 = 1,320 25-Jan Sales 145units @ $ 15.00 30-Jan Purchase100units @ $ 5.00 = 500 . Totals460units $ 2,800 235units
Facts of the problem
:
Slide3Specific Identification
Slide4Facts of the problem:
Units Acquired, at Cost Units Sold, at Retail 1-Jan Beg. inventory140units @ $ 7.00 = $ 980 10-Jan Sales 90units @ $ 15.00 20-Jan Purchase220units @ $ 6.00 = 1,320 25-Jan Sales 145units @ $ 15.00 30-Jan Purchase100units @ $ 5.00 = 500 . Totals460units $ 2,800 235units
Specific ID
Ending inventory consists of 100 units from the Jan 30 purchase, 80 units from the Jan 20 purchase, and 45 units from beginning inventory.
Slide5Facts of the problem:
Units Acquired, at Cost Units Sold, at Retail 1-Jan Beg. inventory140units @ $ 7.00 = $ 980 10-Jan Sales 90units @ $ 15.00 20-Jan Purchase220units @ $ 6.00 = 1,320 25-Jan Sales 145units @ $ 15.00 30-Jan Purchase100units @ $ 5.00 = 500 . Totals460units $ 2,800 235units Specific IDCost of goods available for sale:
$ 2,800
Ending inventory
from Jan 30 purchase
100
units @
$ 5.00
=
$ 500
from Jan 20 purchase
80
units @
$ 6.00
=
480
from beginning inventory
45
units @
$ 7.00
=
315
Total Ending inventory
1,295
COGS
$ 1,505
Slide6Weighted Average
Slide7Facts of the problem:
Units Acquired, at Cost Units Sold, at Retail 1-Jan Beg. inventory140units @ $ 7.00 = $ 980 10-Jan Sales 90units @ $ 15.00 20-Jan Purchase220units @ $ 6.00 = 1,320 25-Jan Sales 145units @ $ 15.00 30-Jan Purchase100units @ $ 5.00 = 500 . Totals460units $ 2,800 235units Weighted Average - PerpetualCOGS, Jan 10 sale:
Goods available
140
units @
$ 7.00
Average cost per unit of goods available:
$ 7.00 per unit Units sold x Average cost per unit of goods available: 90units @ $ 7.00 = $ 630 COGS, Jan 25 sale: Goods available (from beg. Inv)50units @ $ 7.00 = $ 350 Goods available (from Jan. 20)220units @ $ 6.00 = $ 1,320 270 $ 1,670 Average cost per unit of goods available: $ 1,670 / 270= $ 6.185 per unit Units sold x Average cost per unit of goods available: 145units @ $ 6.185 = $ 897
Ignore the information behind this rectangle, for now.
Slide8Facts of the problem:
Units Acquired, at Cost Units Sold, at Retail 1-Jan Beg. inventory140units @ $ 7.00 = $ 980 10-Jan Sales 90units @ $ 15.00 20-Jan Purchase220units @ $ 6.00 = 1,320 25-Jan Sales 145units @ $ 15.00 30-Jan Purchase100units @ $ 5.00 = 500 . Totals460units $ 2,800 235units Weighted Average - PerpetualCOGS, Jan 10 sale:
Goods available
140
units @
$ 7.00
Average cost per unit of goods available:
$ 7.00 per unit Units sold x Average cost per unit of goods available: 90units @ $ 7.00 = $ 630 COGS, Jan 25 sale: Goods available (from beg. Inv)50units @ $ 7.00 = $ 350 Goods available (from Jan. 20)220units @ $ 6.00 = $ 1,320 Total Available270 $ 1,670 Average cost per unit of goods available: $ 1,670 / 270 units= $ 6.185 per unit Units sold x Average cost per unit of goods available: 145units @ $ 6.185 = $ 897
Cost of goods available for sale
$ 2,800
COGS using weighted average
10-Jan
$ 630
25-Jan 897 Total COGS 1,527 Ending inventory $ 1,273
Ignore the information behind this rectangle, for now.
Slide9Facts of the problem:
Units Acquired, at Cost Units Sold, at Retail 1-Jan Beg. inventory140units @ $ 7.00 = $ 980 10-Jan Sales 90units @ $ 15.00 20-Jan Purchase220units @ $ 6.00 = 1,320 25-Jan Sales 145units @ $ 15.00 30-Jan Purchase100units @ $ 5.00 = 500 . Totals460units $ 2,800 235units Weighted Average - PeriodicAverage cost per unit of goods available: $2,800 / 460 units = $6.087 per unitUnits sold x Average unit cost: 235 units * $6.087 = $1,430.43 COGS
Slide10FIFO
Slide11Facts of the problem:
Units Acquired, at Cost Units Sold, at Retail 1-Jan Beg. inventory140units @ $ 7.00 = $ 980 10-Jan Sales 90units @ $ 15.00 20-Jan Purchase220units @ $ 6.00 = 1,320 25-Jan Sales 145units @ $ 15.00 30-Jan Purchase100units @ $ 5.00 = 500 . Totals460units $ 2,800 235units First-In, First-Out (FIFO)
Cost of Goods Sold on Jan 10
90
units
*
$ 7.00
=
$ 630
Slide12Facts of the problem:
Units Acquired, at Cost Units Sold, at Retail 1-Jan Beg. inventory140units @ $ 7.00 = $ 980 10-Jan Sales 90units @ $ 15.00 20-Jan Purchase220units @ $ 6.00 = 1,320 25-Jan Sales 145units @ $ 15.00 30-Jan Purchase100units @ $ 5.00 = 500 . Totals460units $ 2,800 235units First-In, First-Out (FIFO)
Cost of Goods Sold on Jan 25 *
50
units @
$ 7.00
=
350
Cost of Goods Sold on Jan 25
95
units @
$ 6.00
= 570 d*completely use up the earliest "cost layer", which is beginning inventory in this case.
Slide13Facts of the problem:
Units Acquired, at Cost Units Sold, at Retail 1-Jan Beg. inventory140units @ $ 7.00 = $ 980 10-Jan Sales 90units @ $ 15.00 20-Jan Purchase220units @ $ 6.00 = 1,320 25-Jan Sales 145units @ $ 15.00 30-Jan Purchase100units @ $ 5.00 = 500 . Totals460units $ 2,800 235units First-In, First-Out (FIFO)Cost of goods available for sale
$ 2,800
COGS using
FIFO
Cost of Goods Sold on Jan 10
90
units @
$ 7.00
=
$ 630
Cost of Goods Sold on Jan 25
50
units @
$ 7.00
= 350 Cost of Goods Sold on Jan 2595units @ $ 6.00 = 570 Total COGS 1,550 Ending inventory $ 1,250
Slide14LIFO
Slide15Facts of the problem:
Units Acquired, at Cost Units Sold, at Retail 1-Jan Beg. inventory140units @ $ 7.00 = $ 980 10-Jan Sales 90units @ $ 15.00 20-Jan Purchase220units @ $ 6.00 = 1,320 25-Jan Sales 145units @ $ 15.00 30-Jan Purchase100units @ $ 5.00 = 500 . Totals460units $ 2,800 235units Last-In, First-Out (LIFO) - Perpetual
Cost of Goods Sold on Jan 10
90
units @
$ 7.00
=
$ 630
Ignore the information behind this rectangle, for now.
Slide16Facts of the problem:
Units Acquired, at Cost Units Sold, at Retail 1-Jan Beg. inventory140units @ $ 7.00 = $ 980 10-Jan Sales 90units @ $ 15.00 20-Jan Purchase220units @ $ 6.00 = 1,320 25-Jan Sales 145units @ $ 15.00 30-Jan Purchase100units @ $ 5.00 = 500 . Totals460units $ 2,800 235units Last-In, First-Out (LIFO) - Perpetual
Cost of Goods Sold on Jan 25
145
units @
$
6.00
=
870
Ignore the information behind this rectangle, for now.
Slide17Facts of the problem:
Units Acquired, at Cost Units Sold, at Retail 1-Jan Beg. inventory140units @ $ 7.00 = $ 980 10-Jan Sales 90units @ $ 15.00 20-Jan Purchase220units @ $ 6.00 = 1,320 25-Jan Sales 145units @ $ 15.00 30-Jan Purchase100units @ $ 5.00 = 500 . Totals460units $ 2,800 235units Last-In, First-Out (LIFO) - PerpetualCost of goods available for sale
$ 2,800
COGS using
LIFO - perpetual
Cost of Goods Sold on Jan 10
90
units @
$ 7.00
=
$ 630
Cost of Goods Sold on Jan 25
145
units @
$ 6.00 = 870 Total COGS 1,500 Ending inventory $ 1,300
Slide18Facts of the problem:
Units Acquired, at Cost Units Sold, at Retail 1-Jan Beg. inventory140units @ $ 7.00 = $ 980 10-Jan Sales 90units @ $ 15.00 20-Jan Purchase220units @ $ 6.00 = 1,320 25-Jan Sales 145units @ $ 15.00 30-Jan Purchase100units @ $ 5.00 = 500 . Totals460units $ 2,800 235units Last-In, First-Out (LIFO) - PeriodicCost of goods available for sale
$ 2,800
COGS using
LIFO - periodic
100
units @
$
5.00
=
$
500
135
units @
$ 6.00 = 810 Total COGS 1,310 Ending inventory $ 1,490 Start with the newest and move to older layers
Slide19Tips to remember
Specific Identification and Weighted Average are very different from FIFO and LIFO
FIFO periodic and FIFO perpetual will result in the same COGSLIFO periodic and LIFO perpetual can result in different COGSWhen using Perpetual, remember to use the information you have at the time you make the Sales journal entries.