1. Professor Eric Carstensen
Inventory
Professor Eric Carstensen
MiraCosta College

2. Considerations
For Merchandisers, Inventory can account for 80% or more of Assets – proper valuation and management is critical
Ownership
Goods In Transit
Goods on Consignment
Damaged / Obsolete Goods

3. Inventory Relationship
Beginning +
Purchases
Inventory
Cost of Goods Available for Sale
COGS
Ending
Cost of Goods Available - Ending Inventory = COGS

4. Inventory Valuation Methods (also called Cost-Flow Assumptions)
First In, First Out (FIFO)
Last In, First Out (LIFO)
Weighted Average
Specific Identification

5. Valuation Example - Transactions
4/1
beginning inventory = 100 $10 per unit
4/3
purchase 200 $12 per unit
4/10
issue 200 units for sale *
4/20
purchase 200 $14 per unit
4/27
issue 300 units for sale ** *
for specific identification, assume 50 units from beginning
inventory and 150 units from the April 3rd purchase were issued **
for specific identification, assume 150 units from beginning
inventory and 150 units from the April 10th purchase were issued

6. Valuation Example – Initial Calculations
beginning
200
$10 per unit =
1,000
4/3
$12 per unit
2,400
4/20
$14 per unit
2,800
available
600
6,200
4/10
4/27
300
sales
500
units available
units sold
units in ending inventory
100

7. Valuation Example - FIFO
Date
Purchases
 Sales
 Inventory Balance
units
cost
extended cost
beg
200 12
2,400
4/3 14
2,800
subtotal
400
5,200
4/10
4/20 16
3,200
6,000
4/27
100
1,600
4/30
ending inv.

8. Valuation Example - LIFO
Date
Purchases
 Sales
Inventory Balance 
units
cost
extended cost
beg
200 12
2,400
4/3 14
2,800
subtotal
400
5,200
4/10
4/20 16
3,200
5,600
4/27
100
1,200
4/30
ending inv.

9. Valuation Example – Weighted Average
Date
Purchases
Sales 
Inventory Balance
units
cost
extended cost
beg
200
12.00
2,400
4/3
14.00
2,800
subtotal
400
13.00
5,200
4/10
1,600
2,600
4/20
16.00
3,200
14.50
5,800
4/27
300
4,350
100
1,450
4/30
ending inv.

10. Valuation example – Specific Identification
Date
Purchases
Sales 
Inventory Balance 
units
cost
extended cost
beg
200
12.00
2,400
4/3
14.00
2,800
subtotal
400
5,200
4/10 50
600
150
1,800
2,100
700
4/20
16.00
3,200
5,700
4/27
800
ending inv.
100
1,500

11. Comparison of Methods FIFO LIFO W.A. S.I. Cost of Goods Available
6,200
Ending Inventory
1,600
1,200
1,450
1,500
Cost of Goods Sold
4,600
5,000
4,750
4,700

12. Lower of Cost or Market (LCM)
Units
Cost Per
Market
Extended
Lower
Unit
Per Unit
Cost
Pants 20 44 48
880
960
Shirts 25 35 36
875
900
Belts 18 17
360
306
Socks 30 13 14
390
420
Hats 22 15 12
330
264
Totals
2,835
2,850
2,715
In order to bring the amount of inventory on the books in line with
LCM, we need to do an adjustment of 135 (= 2, ,715):
debit Cost of Goods Sold
135
credit Inventory