1. Chapter 6 Inventories Lecture 29

2. Lecture Overview Inventory Systems Perpetual Inventory System Periodic Inventory System Cost Flow Assumptions First in First Out Last in First Out

3. Cost of Mdse. Sold

4. Item 127B PurchasesCost of Mdse. SoldInventory Balance UnitTotalUnitTotalUnitTotal Date Qty.Cost Cost Qty.CostCost Qty.CostCost Jan. 11020200

5. Cost of Mdse. Sold

6. Item 127B PurchasesCost of Mdse. SoldInventory Balance UnitTotalUnitTotalUnitTotal Date Qty.Cost Cost Qty.CostCost Qty.CostCost The sale of 7 units leaves a balance of 3 units. Jan. 11020200 472014032060 Jan. 11020200 On January 4, 7 units of Item 127B are sold at Rs. 30 each.

7. Cost of Mdse. Sold

8. Item 127B PurchasesCost of Mdse. SoldInventory Balance UnitTotalUnitTotalUnitTotal Date Qty.Cost Cost Qty.CostCost Qty.CostCost Jan. 11020200 472014032060 1082116811 20.7 228

9. Cost of Mdse. Sold

10. Item 127B PurchasesCost of Mdse. SoldInventory Balance UnitTotalUnitTotalUnitTotal Date Qty.Cost Cost Qty.CostCost Qty.CostCost Jan. 11020200 472014032060 1082116811 20.7 228 224 20.7 82.8 7 20.7 145.2

11. Cost of Mdse. Sold

12. Item 127B PurchasesCost of Mdse. SoldInventory Balance UnitTotalUnitTotalUnitTotal Date Qty.Cost Cost Qty.CostCost Qty.CostCost Jan. 11020200 472014032060 1082116811 20.7 228 224 20.7 82.8 7 20.7 145.2 282 20.7 41.4 5 20.7 103.8

13. Cost of Mdse. Sold

14. Item 127B PurchasesCost of Mdse. SoldInventory Balance UnitTotalUnitTotalUnitTotal Date Qty.Cost Cost Qty.CostCost Qty.CostCost Jan. 11020200 472014032060 1082116811 20.7 228 224 20.7 82.8 7 20.7 145.2 282 20.7 41.4 5 20.7 103.8 301022220 15 21.6 323.8 Totals1838813 262.2 15 21.6323.8

16. Jan. 1Beginning Inventory 200 units @ Rs.9 Mar. 10 Purchase 300 units @ Rs.10 400 units @ Rs.11 Sept. 21 Purchase 100 units @ Rs.12 Nov. 18 Purchase 1,000 units available for sale during year

17. 200 units @ Rs.9 300 units @ Rs.10 400 units @ Rs.11 100 units @ 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

18. Cost of Merchandise Available for Sale Units Available for Sale During Year = Average Unit Cost Rs.10,400 1,000 Units = Rs.10.40 per Unit

19. Cost of merchandise available for saleRs.10,400 Less ending inventory (Rs.10.40 x 300) 3,120 Cost of merchandise soldRs. 7,280 Cost of merchandise available for saleRs.10,400 Less ending inventory (Rs.10.40 x 300) 3,120 Cost of merchandise soldRs. 7,280 To verify this amount, multiply 700 units sold times Rs.10.40 to get the same Rs.7,280.

20. 3,800 2,700 4,650 3,920 Total 15,52015,47215,070 Valuation of Inventory at Lower-of-Cost-or-Market A40010.25 9.50 4,100 3,800 B12022.5024.102,7002,892 C6008.007.754,8004,650 D28014.0014.753,9204,130 Unit InventoryCostMarketTotalTotal Lower ItemQuantityPricePriceCostMarketC or M The market decline based on individual items (Rs.15,520 – Rs.15,070) = Rs.450

21. Lecture Overview Inventory Systems Perpetual Inventory System Periodic Inventory System Cost Flow Assumptions First in First Out Last in First Out Average Inventory Method

22. The End Chapter 9

24. Retail Method of Estimating Inventory Cost  Retail method is based on relationship between cost of merchandise available for sale and the retail price.  Retail prices of all merchandise must be accumulated and totaled.  Inventory at retail is calculated at retail price of merchandise available for sale less net sales at retail.  Ratio is calculated as cost divided by retail price.  Inventory at retail price times cost ratio equals estimated cost of inventory.

25. Cost Retail Merchandise inventory, Jan. 119,400 36,000 Purchases in January (net) 42,600 64,000 Merchandise available for sale62,000 100,000 Ratio of cost to retail price = 62,000 100,000 = 62%

26. Sales for January (net) 70,000 Merchandise inventory, January 31, at retail 30,000 Cost Retail Merchandise inventory, Jan. 119,400 36,000 Purchases in January (net) 42,600 64,000 Merchandise available for sale62,000 100,000

27. Merchandise inventory, January 31, at cost ($30,000 x 62%)18,600 Sales for January (net) 70,000 Merchandise inventory, January 31, at retail 30,000 Cost Retail Merchandise inventory, Jan. 119,400 36,000 Purchases in January (net) 42,600 64,000 Merchandise available for sale62,000 100,000

28. 1.A gross profit percentage rate is estimated based on previous experience adjusted for known changes. 2.Estimated gross profit is calculated by multiplying the estimated gross profit rate times the actual net sales. 3.Estimated cost of merchandise sold is calculated by subtracting the gross profit from actual sales. 4.The cost of merchandise sold estimate is deducted from actual merchandise available for sale to determine the estimated cost of merchandise inventory.

29. Merchandise inventory, January 1 57,000 Purchases in January (net)180,000 Merchandise available for sale Sales in January (net)250,000 Less: Estimated gross profit Estimated cost of merchandise sold Estimated merchandise inventory, January 31 ($250,000 x 30%) 75,000 175,000 62,000 237,000

30. Inventory Turnover SUPERVALU Zale Cost of merchandise sold15,620,127,000 737,188,000 Inventories: Beginning of year1,115,529,000478,467,000 End of year 1,067,837,000571,669,000 Total2,183,366,0001,050,136,000 Average1,091,683,000525,068,000 Inventory turnover14.3 times1.4 times

31. Average daily cost of merchandise sold: 15,620,127,000/36542,794,868 737,188,000/3652,019,693 Ending inventory1,067,837,000571,669,000 Number of Days’ Sales in Inventory SUPERVALU Zale Average selling period25 days283 days Use:To assess the efficiency in the management of inventory

32. The End Chapter 9