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Chapter 17 Notes

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33 views3 pages

Chapter 17 Notes

Uploaded by

Bee Zhu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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More Homework Help

Concept 1 Fifo, Lifo, or Average


For Inventory method - First check to be sure you know what they are asking.
Are they looking for the Ending Inventory or something else?

FIFO The ending inventory (what is left over) will be your newest stuff
Units Cost Total
Beginning Inventory 200 $ 18.00 $ 3,600.00
Purchases March 1 400 $ 22.00 $ 8,800.00
Purchases March 8 100 $ 21.00 $ 2,100.00
Total 700 $ 14,500.00

Let's say the problem said you sold 500. That means 200 from beginng
and 300 from the March 1 purchases.

Your Ending inventory would be 100 left from March 1


and 100 from March 8

Units Cost Total


Beginning Inventory 0 $ 18.00 $ -
Purchases March 1 100 $ 22.00 $ 2,200.00
Purchases March 8 100 $ 21.00 $ 2,100.00
Total 200 $ 4,300.00

LIFO The ending inventory (what is left over) will be your oldest stuff
Units Cost Total
Beginning Inventory 200 $ 18.00 $ 3,600.00
Purchases March 1 400 $ 22.00 $ 8,800.00
Purchases March 8 100 $ 21.00 $ 2,100.00
Total 700 $ 14,500.00

Let's say the problem said you sold 500. That means 100 from March 8
and 400 from the March 1 purchases.

Your Ending inventory would be 100 left from March 1


and 100 from March 8

Units Cost Total


Beginning Inventory 200 $ 18.00 $ 3,600.00
Purchases March 1 0 $ 22.00 $ -
Purchases March 8 0 $ 21.00 $ -
Total 200 $ 3,600.00
Average With average cost, you first have to figure out what the average cost is.
Cost

Units Cost Total


Beginning Inventory 200 $ 18.00 $ 3,600.00
Purchases March 1 400 $ 22.00 $ 8,800.00
Purchases March 8 100 $ 21.00 $ 2,100.00
Total 700 $ 14,500.00
Average 14500/700= $ 20.71

If you sold 500 units you know you have 200 left in inventory
Units Cost Total
200 $ 20.71 $ 4,142.00

Concept 2 Lower of cost or Market


In looking at your inventory costs, you want to carry your remaining inventory
at the lower of cost or retail price.
There are 3 different ways.
1. Price each individual product at the lower of cost or retail
2. Look at each inventory group or type of product.
3. Just look at the bottom line on your inventory

But, to do this, you have to make a spreadsheet that shows each product
at its cost (wholesale) and Market (retail) prices.

Best to simply look at the examples in the book.

Concept 3 Inventory Valuation Gross Profit Method


These are usually given to you as a word problem. What you want to do is to set it up
in your Income statement format (COGS Section)

Beginning Inventory
+Purchases
=Goods available for sale
Less ending inventory
= Cost of Goods sold

The only trick on this is you don't know the ending inventory. But, you do know
the cost of goods sold. You know that because the problem will give you the
gross profit %.
So you just subtract the cost of goods sold from goods available for sale
That gives you the ending inventory
Here is an example

Company A had sales of 780,000. Their inventory on January 1 was 500,000


On March 1 they purchased 300,000
Their gross profit % is 40%
So I plug in my numbers into my income statement COGS

Beginning Inventory $ 500,000


+Purchases $ 300,000
=Goods available for sale $ 800,000
Less ending inventory ?????? This is what I am trying to figure out
= Cost of Goods sold $ 468,000

100%-40%=60%
780,000*60% = $ 468,000

Ending inventory = 800,000-468,000 = $332,000

Concept 4 Inventory Valuation Retail method

Using the same problem as above


Add this new column of retail prices
Cost Retail
Beginning Inventory $ 500,000 $ 769,230
+Purchases $ 300,000 $ 461,538
=Goods available for sale $ 800,000 $ 1,230,768
Less Sales at retail $ 720,000
= Ending inventory ?????? $ 510,769

$800,000/$1,230,768= 65%

Ending Inventory = $510,769*65%=$332,000

Cost of Goods sold = $ 468,000

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