1. BUA111
Chp. 6: Inventory
Dr. K. Moon

2. Inventory Theory
Effect on financial statements: flow of goods Actual v. hypothetical flow of goods Methods: Specific ID, Ave. Cost, FIFO, LIFO
Dr. K. Moon

3. Periodic Inventory Practice Problem
The units of an item available for sale during the year were as follows: Jan.1 Inventory 21 units at $180 Mar. 10 Purchase 29 units at $195 Aug. 30 Purchase 10 units at $204 Dec. 12 Purchase 15 units at $210 There are 24 units of the item in the physical inventory at December 31. The periodic inventory system is used. Determine the inventory cost and the cost of merchandise sold by three methods, presenting your answers in the following form: Cost Inventory Method Merchandise Inventory Merchandise Sold a. First-in, first-out $ $ b. Last-in, first-out c. Average cost
Dr. K. Moon

4. First Steps: Calculate Total Units and Total COGAS
Cost of merchandise available for sale (COGAS): 21 units at $180 $ 3, units at $195 5, units at $204 2, units at $210 3, units (at average cost of $195) $14,625 COGAS
Dr. K. Moon

5. FIFO
a. First-in, first-out: Merchandise inventory: 15 units at $210 $3,150 9 units at $204 1, units $4,986 EI Merchandise sold: COGAS - EI = COGS $14,625 – $4,986 $9,639
Dr. K. Moon

6. LIFO
b. Last-in, first-out: Merchandise inventory: 21 units at $180 $3,780 3 units at $ units $4,365 EI Merchandise sold: $14,625 – $4,365 $10,260 COGS
Dr. K. Moon

7. Ave. Cost
c. Average cost: Merchandise inventory: 24 units at $195 ($14,625/75 units) $4,680 EI Merchandise sold: $14,625 – $4,680 $9,945 COGS
Dr. K. Moon

8. ANSWER SUMMARY TABLE
Inventory Method EI COGS a. FIFO $ 4,986 $ 9,639 b. LIFO 4,365 10,260 c. Average cost 4,680 9,945
Dr. K. Moon