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    Inventory Costing Power Point Presentation

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    MUBBASHIR . MBA(P)
    This document discusses inventory costing methods. It outlines the goals of including the correct components in inventory, discussing methods like FIFO, LIFO, and weighted average. It provides examples of calculations for each method and compares the different results. Specifically, it notes that LIFO typically produces the lowest income while FIFO produces the highest. The document also addresses potential inventory errors and how inaccuracies could impact financial reporting.

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    Inventory Costing Power Point Presentation

    Uploaded by

    MUBBASHIR . MBA(P)
    260 views17 pages
    This document discusses inventory costing methods. It outlines the goals of including the correct components in inventory, discussing methods like FIFO, LIFO, and weighted average. It provides examples of calculations for each method and compares the different results. Specifically, it notes that LIFO typically produces the lowest income while FIFO produces the highest. The document also addresses potential inventory errors and how inaccuracies could impact financial reporting.

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    Inventory Costing

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    This document discusses inventory costing methods. It outlines the goals of including the correct components in inventory, discussing methods like FIFO, LIFO, and weighted average. It provides examples of calculations for each method and compares the different results. Specifically, it notes that LIFO typically produces the lowest income while FIFO produces the highest. The document also addresses potential inventory errors and how inaccuracies could impact financial reporting.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    260 views17 pages

    Inventory Costing Power Point Presentation

    Uploaded by

    MUBBASHIR . MBA(P)
    This document discusses inventory costing methods. It outlines the goals of including the correct components in inventory, discussing methods like FIFO, LIFO, and weighted average. It provides examples of calculations for each method and compares the different results. Specifically, it notes that LIFO typically produces the lowest income while FIFO produces the highest. The document also addresses potential inventory errors and how inaccuracies could impact financial reporting.

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    You are on page 1of 17

    INVENTORY COSTING

    GROUP MEMBER:

    MUHAMMAD SHOAIB
    MUHAMMAD SHAHZAIB
    MUBBASHIR
    GOALS

    • (1) The correct components to include in inventory.


    • (2) Inventory Costing Methods
    • (3) The perpetual system for valuing inventory
    • (4) Cost Control
    • (5) Inventory Estimation Techniques
    • (6) Inventory Management and Monitoring
    THE COST OF ENDING
    INVENTORY
    • The inventory must include the invoice price, freight In, and
    similar item relating o the general rule.
    • Conversely, “Carrying costs” like interest charges(if money
    was borrowed to buy the inventory), storage cost, and
    insurance on good held awaiting sale.
    COSTING METHODS

    • A company must adopt an inventory costing method. The


    methods from which to choose are varied, generally
    consisting of the following:
    • (1) First In, First out (FIFO)
    • (2) Last In, First out (LIFO)
    • (3) Weighted Average
    ASSUMPTIONS

    • (1) These methods bear no relation to the physical flow of


    goods.
    • (2) These methods merely used to assigned cost to
    Inventory Units.
    • (3) Another method is specific identification method but it
    does not depend on cost flow assumption.
    FIRST IN-FIRST OUT METHOD

    • With first-in, first-out, the oldest cost (i.e., the first in) is
    matched against revenue and assigned to cost of goods sold.
    Conversely, the most recent purchases are assigned to units
    in ending inventory.
    FIFO BASIS
    LAST IN-FIRST OUT METHOD

    • Last-in, first-out is just the reverse of FIFO; recent costs are


    assigned to goods sold while the oldest costs remain in
    inventory:
    WEIGHTED AVERAGE

    • The weighted-average method relies on average unit cost


    to calculate cost of units sold and ending inventory. Average
    cost is determined by dividing total cost of goods available
    for sale by total units available for sale.
    •
    FIFO CALCULATIONS
    LIFO CALCULATIONS
    WEIGHTED AVERAGE
    CALCULATIONS
    COMPARING METHODS

    • The following table reveals that the amount of gross profit


    and ending inventory can appear quite different, depending
    on the inventory method selected:
    •
    Comparing Methods

    • The preceding results are consistent with a general rule that LIFO produces
    the lowest income , FIFO the highest, and weighted average an amount in
    between.
    • Accounting theorists may argue that financial statement presentations are
    enhanced by LIFO because it matches recently incurred costs with the
    recently generated revenues. Others maintain that FIFO is better because
    recent costs are reported in inventory on the balance sheet.
    • Whichever method is used, it is important to note that the inventory
    method must be clearly communicated in the financial statements and
    related notes.
    INVENTORY ERRORS

    • In the process of maintaining inventory records and the


    physical count of goods on hand, errors may occur. It is
    quite easy to overlook goods on hand, count goods twice,
    or simply make mathematical mistakes. It is vital that
    accountants and business owners fully understand the
    effects of inventory errors and grasp the need to be careful
    to get these numbers as correct as possible.
    Had the above inventory error been an understatement ($3,000 instead
    of the correct $4,000), then the ripple effect would have caused an
    understatement of income by $1,000.
    Thank You

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