LESSON 19-2 Determining the Cost of Merchandise Inventory 6/16/2018 LESSON 19-2 Determining the Cost of Merchandise Inventory

3 Methods of calculating Inventory: FIFO – First In, First Out The first merchandise purchased is the first merchandise sold Examples – perishable items – dairy, meat, frozen foods, bakery, etc. LIFO – Last In, First Out The most recent (last) merchandise purchased is the first to sell. Examples – “new” technology items – iPod, PS3, cell phones, etc. Weighted Average An average of all merchandise on hand LESSON 19-2

FIRST-IN, FIRST-OUT INVENTORY COSTING METHOD page 569 3 4 2 5 1 1. Total units on hand 2. Units from the most recent purchase are counted first. 3. Units needed to equal the total units on hand 4. Unit price x FIFO units 5. Total FIFO cost LESSON 19-2

LAST-IN, FIRST-OUT INVENTORY COSTING METHOD page 570 3 2 5 4 6 1 1. Total units on hand 2. Beginning inventory units 5. Unit price times lifo units 3. Units from the earliest purchase 6. Total lifo cost 4. Units needed to equal total units on hand LESSON 19-2

WEIGHTED-AVERAGE INVENTORY COSTING METHOD page 571 1. Total cost of inventory available 2. Weighted-average price per unit 1 3. Cost of ending inventory 2 3 LESSON 19-2

CALCULATING THE COST OF MERCHANDISE SOLD page 572 Cost of Merchandise Sold = (FIFO) Cost of Ending Inventory – Cost of Merchandise Available for Sale $1,020.00 – $386.00 = $634.00 LESSON 19-2

COMPARISON OF INVENTORY METHODS page 572 LESSON 19-2

TERMS REVIEW first-in, first-out inventory costing method page 573 first-in, first-out inventory costing method last-in, first-out inventory costing method weighted-average inventory costing method LESSON 19-2