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Inventory - Cost Formulas

The document discusses different costing methods for inventories: 1) Specific identification assigns costs to non-interchangeable items or custom projects based on individual costs. 2) FIFO or weighted average assigns costs to interchangeable inventories, using the same method for similar items. 3) Periodic and perpetual inventory systems are illustrated using FIFO, with ending inventory calculated differently between the two methods.

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271 views3 pages

Inventory - Cost Formulas

The document discusses different costing methods for inventories: 1) Specific identification assigns costs to non-interchangeable items or custom projects based on individual costs. 2) FIFO or weighted average assigns costs to interchangeable inventories, using the same method for similar items. 3) Periodic and perpetual inventory systems are illustrated using FIFO, with ending inventory calculated differently between the two methods.

Uploaded by

lheamaecayabyab4
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Cost Formulas

• The cost of inventories of items that are not ordinarily


interchangeable and goods or services produced and segregated for
specific projects shall be assigned by using specific
identification of their individual costs.

• The cost of inventories, other than those that are not ordinarily
interchangeable, shall be assigned by using the first-in, first-
out (FIFO) or weighted average cost formula. An entity shall use
the same cost formula for all inventories having a similar nature
and use to the entity. For inventories with a different nature or
use, different cost formulas may be justified.

FIFO Perpetual and Periodic Illustrated

Units Unit Cost Total Cost


Jan. 1 Beginning balance 8,000 70.00 560,000
6 Purchase 3,000 81.00 243,000
Feb. 5 Sale 10,000
Mar. 5 Purchase 11,000 73.50 808,500
Mar. 8 Purchase return 800 73.50 58,800
Apr. 10 Sale 7,000
Apr. 30 Sale return 300

• If periodic FIFO is used, the ending inventory will be unit cost


from the March 5 purchase and will be deducted from the
accumulation of the beginning inventory and net purchase, known
as the total goods available for sale.

Beginning balance (8,000 x 70) 560,000


Feb. 5 Purchase (3,000 x 81) 243,000
Mar. 5 Net Purchase (10,200 x 73.50) 749,700
Total goods available for sale 1,552,700
Less: Ending Inventory* (4,500 x 73.50) 330,750
Cost of goods sold 1,221,950
*Ending inventory in units (21,200 – 16,700) 4,500

1
• COGS computation under perpetual
Feb. 5 Costs of goods sold:
Jan. 1 Inventory (8,000 x 70) 560,000
Jan. 6 Inventory (2,000 x 81) 162,000
Total 722,000
April 10 Net Costs of goods sold:
Jan.6 Inventory (1,000 x 81) 81,000
Mar. 5 Inventory (5,700 x 73.50) 418,950
Total 499,950
Jan. 1 Inventory 560,000
6 Purchase 243,000
Total 803,000
Feb. 5 COGS (722,000)
Balance 81,000
Mar. 5 Net Purchase 749,700
Total 830,700
Apr. 10 Net COGS (499,950)
Apr. 30 Inventory balance 330,750

• Periodic Average or Weighted Average


Beginning balance (8,000 x 70) 560,000
Feb. 5 Purchase (3,000 x 81) 243,000
Mar. 5 Net Purchase (10,200 x 73.50) 749,700
Total goods available for sale 1,552,700
Less: Ending Inventory* (4,500 x 73.24**) 329,580
Cost of goods sold 1,223,120
Total cost 1,552,700
Divide by total number of units 21,200
**Weighted average cost per unit 73.24

2
• Perpetual Average or Moving Average
Jan. 1 Inventory 560,000
6 Purchase 243,000
Total 803,000
Feb. 5 COGS (10,000 x 73.00***) (730,000)
Balance 73,000
Mar. 5 Net Purchase 749,700
Total 822,700
Apr. 10 Net COGS (6,700 * 73.46****) (492,182)
Apr. 30 Inventory balance 330,518
*** Feb 5. Average cost (803,000 / 11,000) 73.00
**** April 10 Average cost (822,700 / 11,200) 73.46

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