Chapter 6 Inventories Lecture 27. Lecture Overview.

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Presentation transcript:

Chapter 6 Inventories Lecture 27

Lecture Overview

Cost Flow Assumptions (contd.) 1.First-In, First Out (FIFO) method. 2.Last-in, First-Out (LIFO) method. 3.Weighted-Average Cost method. 4.Specific Identification method.

PurchasesCost of Mdse. SoldInventory Balance UnitTotalUnitTotalUnitTotal Date Qty.Cost Cost Qty.CostCost Qty.CostCost

Cost of Mdse. Sold

Item 127B PurchasesCost of Mdse. SoldInventory Balance UnitTotalUnitTotalUnitTotal Date Qty.Cost Cost Qty.CostCost Qty.CostCost Jan

Cost of Mdse. Sold

Item 127B PurchasesCost of Mdse. SoldInventory Balance UnitTotalUnitTotalUnitTotal Date Qty.Cost Cost Qty.CostCost Qty.CostCost Jan Jan

Cost of Mdse. Sold

Item 127B PurchasesCost of Mdse. SoldInventory Balance UnitTotalUnitTotalUnitTotal Date Qty.Cost Cost Qty.CostCost Qty.CostCost Jan Because the purchase price of 21 is different than the cost of the previous 3 units on hand, the inventory balance of 11 units is accounted for separately.

Cost of Mdse. Sold

Item 127B PurchasesCost of Mdse. SoldInventory Balance UnitTotalUnitTotalUnitTotal Date Qty.Cost Cost Qty.CostCost Qty.CostCost Jan Of the four units sold, three are from the first units in (fifo) at a cost of 20.

Cost of Mdse. Sold

Item 127B PurchasesCost of Mdse. SoldInventory Balance UnitTotalUnitTotalUnitTotal Date Qty.Cost Cost Qty.CostCost Qty.CostCost Jan

Cost of Mdse. Sold

Item 127B PurchasesCost of Mdse. SoldInventory Balance UnitTotalUnitTotalUnitTotal Date Qty.Cost Cost Qty.CostCost Qty.CostCost Jan Totals

Fifo Periodic

Jan. 1Beginning Inventory 200 Rs.9 Mar. 10 Purchase 300 Rs Rs.11 Sept. 21 Purchase 100 Rs.12 Nov. 18 Purchase 1,000 units available for sale during year

200 Rs Rs Rs Rs.12 1,000 units available for sale during year Rs. Rs.10,400 Rs. =Rs.1,800Jan. 1 = 3,000Mar. 10 =4,400Sept. 21 =1,200Nov. 18 Cost of merchandise available for sale

A physical count on December 31 reveals that 700 of the 1,000 units have been sold. Using fifo, the first units purchased are theoretically the first units sold. We begin the count with January 1.

200 $9 300 $ $ Rs.12 1,000 units available for sale during year $10,400 =$1,800Jan. 1 = 3,000Mar. 10 =4,400Sept. 21 =1,200Nov. 18 Sold these 200 Sold these 300 Sold 200 of these 200 Rs.11 Rs. =Rs. 0Jan. 1 = 0Mar. 10 =2,200Sept. 21 Rs. Rs. 3,400 Ending inventory

Jan units at Rs. 9 Summary of Fifo Periodic Mar units at Rs. 10 Sep units at Rs. 11 Nov units at Rs. 12 Rs. 1,800 Rs. 3,000 Rs.4,400 Rs.1,200 Purchases Merchandise Available for Sale Rs.1,800 Rs.3,000 Rs.2,200 Cost of Merchandise Sold 200 units at Rs. 9 Rs.10,40 0 Rs.2,200 Rs.1,200 Rs.7,000 Merchandise Inventory Rs.3, units at Rs units at Rs units at Rs.12 1,000 units 700 units 300 units

Lecture Overview FIFO (Perpetual Inventory System) FIFO (Periodic Inventory System)

End of Lecture 27

Chapter 6 Inventories Lecture 28

Lecture Overview FIFO (Perpetual Inventory System) FIFO (Periodic Inventory System)

Cost of Mdse. Sold

Item 127B PurchasesCost of Mdse. SoldInventory Balance UnitTotalUnitTotalUnitTotal Date Qty.Cost Cost Qty.CostCost Qty.CostCost Jan

Cost of Mdse. Sold

Item 127B PurchasesCost of Mdse. SoldInventory Balance UnitTotalUnitTotalUnitTotal Date Qty.Cost Cost Qty.CostCost Qty.CostCost Jan

Cost of Mdse. Sold

Item 127B PurchasesCost of Mdse. SoldInventory Balance UnitTotalUnitTotalUnitTotal Date Qty.Cost Cost Qty.CostCost Qty.CostCost Jan Note that a new layer is formed.

Cost of Mdse. Sold

Item 127B PurchasesCost of Mdse. SoldInventory Balance UnitTotalUnitTotalUnitTotal Date Qty.Cost Cost Qty.CostCost Qty.CostCost Jan On January 22, the firm sells four units at $31 each

Cost of Mdse. Sold

Item 127B PurchasesCost of Mdse. SoldInventory Balance UnitTotalUnitTotalUnitTotal Date Qty.Cost Cost Qty.CostCost Qty.CostCost Jan

Cost of Mdse. Sold

Item 127B PurchasesCost of Mdse. SoldInventory Balance UnitTotalUnitTotalUnitTotal Date Qty.Cost Cost Qty.CostCost Qty.CostCost Jan

Cost of Mdse. Sold

Item 127B PurchasesCost of Mdse. SoldInventory Balance UnitTotalUnitTotalUnitTotal Date Qty.Cost Cost Qty.CostCost Qty.CostCost Jan Totals

Lifo Periodic

Jan. 1Beginning Inventory 200 Rs.9 Mar. 10 Purchase 300 Rs Rs.11 Sept. 21 Purchase 100 Rs.12 Nov. 18 Purchase 1,000 units available for sale during year Using lifo, the most recent batch purchased is considered the first batch of merchandise sold.

Jan. 1Beginning Inventory 200 Rs.9 Mar. 10 Purchase 300 Rs Rs.11 Sept. 21 Purchase 100 Rs.12 Nov. 18 Purchase 1,000 units available for sale during year Assume again that 700 units were sold during the year.

200 Rs $ $ $12 1,000 units available for sale during year Sold these 100 Sold these 400 Sold 200 of these 100 Rs.10 Rs. =Rs.1,800Jan. 1 = 3,000Mar. 10 =4,400Sept. 21 =1,200Nov. 18 $10, ,000 Ending Inventory Rs. Rs.2,800

Jan units at Rs. 9 Mar units at Rs.10 Sep units at Rs.11 Nov units at Rs.12 Rs.1,800 Rs.3,000 Rs.4,400 Rs.1,200 Rs.1,800 Rs.1,000 Cost of Merchandise Sold 200 units at Rs.9 10,400 Rs.10,400 Rs.4,400 Rs.1,200 Rs.2,800 Rs.7, units at Rs units at Rs units at Rs units at Rs.12 Rs.2, units 1,000 units 300 units Purchases Merchandise Available for Sale Rs.1,800 Cost of Merchandise Sold

Lecture Overview LIFO (Perpetual Inventory System) LIFO (Periodic Inventory System)

End of Lecture 27