1. Inventory Costing Methods
Chapter 6
Inventory Costing Methods

2. Situation Determine the cost of goods sold
Beginning Inventory 100 units $5/unit (Jan 1)
Purchased 50 units at $6/unit ( March 3)
Purchased 40 Units at $7/unit (June 1)
Purchased 50 Units at $8/unit ( Sept 1)
Purchased 30 Units at $9/unit (Nov 30)
Cost of Goods Available for Sale: $1750
At the end of the year, we had 100 units left in stock
Determine the cost of goods sold

3. Specific Identification
Specific Identification – The products are unique enough or small enough in number that we know exactly which products we have sold. Eg. Car Dealership.
From the previous slide – We assume that we can specifically identify which products we sold

4. Specific Identification
We sold: $5/units, $6/units, 7/ $8/units.
COGS = (50*5)+(35*6)+(35*7)+(50*8)
= = $1105
Ending Inventory = (50*5)+(15*6)+(5*7)+(30*9)
= =645

5. Weighted Average Cost Method
Items are large in number and are homogeneous (nuts and bolts).
A Weighed Average Cost is determined and is used to calculate ending inventory and COGS
= $6.48/ per unit

6. Weighted Average Cost Method
COGS = # Sold x Weighted Average Cost
COGS = 170 x $6.48 =
Ending Inventory = # left over x WAC
Ending Inventory = 100 x $6.48 =$648

7. FIFO FIFO – FIRST IN – FIRST OUT
FIFO assumes the earliest goods purchased will be the first to be sold.
The cost of the earlier inventory will reflect the COGS, The cost of the inventory purchased later will reflect the Ending Inventory

8. FIFO
Remember units were sold, 100 units are left over. (RED = Sold) (Blue = In Stock)

9. FIFO COGS = (100)(5) + (50)(6) +(20)(7) COGS = 940
Ending Inventory = (20)(7) + (50)(8) + (30)(9)
EI = 810

10. LIFO LIFO – LAST IN – LAST OUT
LIFO assumes that the last goods to be purchased will be the first to be sold.
COGS will reflect the cost of inventory purchased later.
Ending Inventory will reflect the cost of inventory purchased earlier

11. LIFO
Remember 170 units were sold, 100 units are left over. (RED = Sold) (Blue = In Stock)

12. LIFO COGS = (50)(6) + (40)(7) + (50)(8) + (30)(9) = 1250
Ending Inventory = (100)(5)
= 500