Loading…

Flash Player 9 (or above) is needed to view presentations.
We have detected that you do not have it on your computer. To install it, go here.

Like this presentation? Why not share!

Like this? Share it with your network

Share

3. inventories

on

  • 3,534 views

Perpetual and Periodic inventory valuation methods are discussed in this presentation. The systems are explained using the different valuations methods (FIFO, LIFO and AVG).

Perpetual and Periodic inventory valuation methods are discussed in this presentation. The systems are explained using the different valuations methods (FIFO, LIFO and AVG).

Statistics

Views

Total Views
3,534
Views on SlideShare
2,807
Embed Views
727

Actions

Likes
5
Downloads
224
Comments
0

1 Embed 727

http://bnleez.moodlehub.com 727

Accessibility

Categories

Upload Details

Uploaded via as Adobe PDF

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment

3. inventories Presentation Transcript

  • 1. Universidad Cuauhtémoc Campus Aguascalientes Inventories Análisis de Costos Maestría en Administración
  • 2. Contents Inventory Control Importance Effects of Inventory in Financial Statements Inventory Costing Methods 1. FIFO Perpetual (First In First Out) 2. LIFO Perpetual (Last In First Out) 3. FIFO Periodic 4. LIFO Periodic 5. Average Periodic Inventory Turn Over
  • 3. Why is Inventory Control Important?  Inventory is a significant asset and for many companies the largest asset.  Inventory is central to the main activity of merchandising and manufacturing companies.  Mistakes in determining inventory cost can cause critical errors in financial statements.  Inventory must be protected from external risks ( such as fire and theft) and internal fraud by employees.
  • 4. Receiving Purchase report AGREE order Invoice JOURNAL Post. Date Description Ref. Nov. 9 Inventory 1 222 00 Accounts Payable—XYZ Co. 1 222 00 Purchased merchandise on account.
  • 5. Effect of Inventory Errors on Financial Statements LIABILITIES Merchandise ASSETS STOCK- Inventory HOLDERS’ EQUITY Net Income Cost of COSTS & REVENUES Merchandise Sold EXPENSES If merchandise inventory is . . . . . . . overstated Cost of merchandise sold is . . . . . . understated Gross profit and net income are . . . overstated Total stockholders’ equity is . . . . . overstated
  • 6. Effect of Inventory Errors on Financial Statements If merchandise inventory is . . . . . . . understated Cost of merchandise sold is . . . . . . overstated Gross profit and net income are . . . understated Ending owner’s equity is . . . . . . . . . understated
  • 7. Inventory Cost Flow Assumptions Purchased goods Sold goods
  • 8. Inventory Cost Flow Assumptions Purchased goods Sold goods
  • 9. Inventory Cost Flow Assumptions Sold Purchased goods goods
  • 10. Inventory Cost Flow Assumptions Purchased Sold goods goods
  • 11. Inventory Costing Methods 43% 40% 34% 30% 19% 20% 10% 4% 0% Fifo Lifo Average Other
  • 12. Perpetual Inventory Costs Inventory cost data to demonstrate FIFO and LIFO Perpetual Systems Item 127B Units Cost Price Jan. 1 Inventory 10 $20 4 Sale Cost of 7 $30 Mdse.Purchase 10 Sold 8 21 22 Sale 4 31 28 Sale 2 32 30 Purchase 10 22
  • 13. FIFO Perpetual Inventory Account Item 127B Purchases Cost of Mdse. Sold Inventory Balance Unit Total Unit Total Unit Total Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost Jan. 1 10 20 200 The firm begins the year with 10 units of Item 127B on hand at a total cost of $200.
  • 14. FIFO Perpetual Inventory Account Inventory cost data to demonstrate FIFO and LIFO Perpetual Systems Item 127B Units Cost Price Jan. 1 Inventory 10 $20 4 Sale Cost of 7 $30 Mdse.Purchase 10 Sold 8 21 22 Sale 4 31 28 Sale 2 32 30 Purchase 10 22 On January 4, 7 units of Item 127B are sold at $30 each.
  • 15. FIFO Perpetual Inventory Account Item 127B Purchases Cost of Mdse. Sold Inventory Balance Unit Total Unit Total Unit Total Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost Jan. 1 10 20 200 4 7 20 140 3 20 60 The sale of 7 units leaves a balance of 3 units. On January 4, 7 units of Item 127B are sold at $30 each.
  • 16. FIFO Perpetual Inventory Account Inventory cost data to demonstrate FIFO and LIFO Perpetual Systems Item 127B Units Cost Price Jan. 1 Inventory 10 $20 4 Sale Cost of 7 $30 Mdse.Purchase 10 Sold 8 21 22 Sale 4 31 28 Sale 2 32 30 Purchase 10 22 On January 10, the firm purchased eight units at $21 each.
  • 17. FIFO Perpetual Inventory Account Item 127B Purchases Cost of Mdse. Sold Inventory Balance Unit Total Unit Total Unit Total Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost Jan. 1 10 20 200 4 7 20 140 3 20 60 10 8 21 168 3 20 60 8 21 168 Because the purchase price of $21 is different than the cost of the previous 3 units Onhand, the inventory balance of on January 10, the firm 11 units is accounted for separately. purchased eight units at $21 each.
  • 18. FIFO Perpetual Inventory Account Inventory cost data to demonstrate FIFO and LIFO Perpetual Systems Item 127B Units Cost Price Jan. 1 Inventory 10 $20 4 Sale Cost of 7 $30 Mdse.Purchase 10 Sold 8 21 22 Sale 4 31 28 Sale 2 32 30 Purchase 10 22 On January 22, the firm sold four units for $31 each.
  • 19. FIFO Perpetual Inventory Account Item 127B Purchases Cost of Mdse. Sold Inventory Balance On January 22, the Unit Total Unit Total Unit Total firm sold four units Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost Jan. 1 for $31 each. 10 20 200 4 7 20 140 3 20 60 10 8 21 168 3 20 60 8 21 168 22 3 20 60 1 21 21 7 21 147 Of the four units sold, three are from the first units in (fifo) at a cost of $20.
  • 20. FIFO Perpetual Inventory Account Inventory cost data to demonstrate FIFO and LIFO Perpetual Systems Item 127B Units Cost Price Jan. 1 Inventory 10 $20 4 Sale Cost of 7 $30 Mdse.Purchase 10 Sold 8 21 22 Sale 4 31 28 Sale 2 32 30 Purchase 10 22 On January 28, the firm sold two units at $32.
  • 21. FIFO Perpetual Inventory Account Item 127B Purchases Cost of Mdse. Sold Inventory Balance Unit Total Unit Total Unit Total Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost Jan. 1 10 20 200 4 7 20 140 3 20 60 10 8 21 168 3 20 60 8 21 168 22 3 20 60 1 21 21 7 21 147 28 2 21 42 5 21 105 On January 28, the firm sold two units at $32.
  • 22. FIFO Perpetual Inventory Account Inventory cost data to demonstrate FIFO and LIFO Perpetual Systems Item 127B Units Cost Price Jan. 1 Inventory 10 $20 4 Sale Cost of 7 $30 Mdse.Purchase 10 Sold 8 21 22 Sale 4 31 28 Sale 2 32 30 Purchase 10 22 On January 30, purchased ten additional units of Item 127B at $22 each.
  • 23. FIFO Perpetual Inventory Account Item 127B Purchases Cost of Mdse. Sold Inventory Balance Unit Total Unit Total Unit Total Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost Jan. 1 10 20 200 4 On January 30, purchased 7 20 140 3 20 60 10 8ten additional units of Item 21 168 3 20 60 127B at $22 each. 8 21 168 22 3 20 60 1 21 21 7 21 147 28 2 21 42 5 21 105 30 10 22 220 5 21 105 10 22 220 Totals 18 $388 13 $263 15 $325
  • 24. LIFO Perpetual Inventory Account Item 127B Purchases Cost of Mdse. Sold Inventory Balance Unit Total Unit Total Unit Total Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost Jan. 1 10 20 200 The firm begins the year with 10 units of Item 127B on hand at a total cost of $200.
  • 25. LIFO Perpetual Inventory Account Item 127B Purchases Cost of Mdse. Sold Inventory Balance Unit Total Unit Total Unit Total Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost Jan. 1 10 20 200 4 7 20 140 3 20 60 On January 4, the firm sold 7 units at $30 each.
  • 26. LIFO Perpetual Inventory Account Item 127B Purchases Cost of Mdse. Sold Inventory Balance Unit Total Unit Total Unit Total Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost Jan. 1 10 20 200 4 7 20 140 3 20 60 10 8 21 168 3 20 60 8 21 168 On January 10, the firm purchased eight Note that a new units at $21 each. layer is formed.
  • 27. LIFO Perpetual Inventory Account Item 127B Purchases Cost of Mdse. Sold Inventory Balance Unit Total Unit Total Unit Total Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost Jan. 1 10 20 200 4 7 20 140 3 20 60 10 8 21 168 3 20 60 8 21 168 22 4 21 84 3 20 60 4 21 84 On January 22,sold, all come Of the 4 units the firm sells four from the most recent purchase units at $31 each. each. at a cost of $21
  • 28. LIFO Perpetual Inventory Account Item 127B Purchases Cost of Mdse. Sold Inventory Balance Unit Total Unit Total Unit Total Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost Jan. 1 10 20 200 4 7 20 140 3 20 60 10 8 21 168 3 20 60 8 21 168 22 4 21 84 3 20 60 4 21 84 28 2 21 42 3 20 60 2 21 42 On January 28, sold two units at $32 each.
  • 29. LIFO Perpetual Inventory Account Item 127B Purchases Cost of Mdse. Sold Inventory Balance Unit Total Unit Total Unit Total Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost Jan. 1 10 20 200 4 7 20 140 3 20 60 10 8 21 168 3 20 60 8 21 168 22 4 21 84 3 20 60 4 21 84 28 2 21 42 3 20 60 2 21 42 30 10 22 220 3 20 60 2 21 42 On January 30, purchase 10 22 220 10 units at $22 each.
  • 30. LIFO Perpetual Inventory Account Item 127B Purchases Cost of Mdse. Sold Inventory Balance Unit Total Unit Total Unit Total Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost Jan. 1 10 20 200 4 7 20 140 3 20 60 10 8 21 168 3 20 60 8 21 168 22 4 21 84 3 20 60 4 21 84 28 2 21 42 3 20 60 2 21 42 30 10 22 220 3 20 60 2 21 42 10 22 220 Totals 18 $388 13 $266 15 $322
  • 31. Fifo Periodic
  • 32. Fifo Periodic 200 units @ $9 Jan. 1 Beginning Inventory 300 units @ $10 Mar. 10 Purchase 400 units @ $11 Sept. 21 Purchase 100 units @ $12 Nov. 18 Purchase 1,000 units available for sale during year
  • 33. Fifo Periodic 200 units @ $9 = $1,800 Jan. 1 300 units @ $10 = 3,000 Mar. 10 400 units @ $11 = 4,400 Sept. 21 100 units @ $12 = 1,200 Nov. 18 1,000 units available $10,400 for sale during year Cost of merchandise available for sale
  • 34. Fifo Periodic A physical count on December 31 reveals that 700 of the 1,000 units have been sold. Using fifo, the first units purchased are theoretically the first units sold. We begin the count with January 1.
  • 35. Fifo Periodic Sold these 200 200 units @ $9 = $1,800 $ 0 Jan. 1 300 units @300 Sold these $10 = 3,000 0 Mar. 10 Sold unitsof these 200 200 @ $11 400 = 2,200 4,400 Sept. 21 100 units @ $12 = 1,200 Nov. 18 1,000 units available $10,400 $ 3,400 for sale during year Ending inventory
  • 36. Fifo Periodic Cost of merchandise available for sale $10,400 Less ending inventory 3,400 Cost of merchandise sold $ 7,000
  • 37. Summary of Fifo Periodic Cost of Merchandise Merchandise Available Sold Purchases for Sale $1,800 200 units at $9 Jan. 1 200 units at $9 $1,800 $3,000 300 units at $10 Mar. 10 300 units at $10 $3,000 200 units at $11 $2,200 Sep. 21 $7,000 700 units 400 units at $11 $4,400 Merchandise Nov. 18 100 units at $12 $1,200 Inventory $2,200 200 units at $11 1,000 units $10,400 $1,200 100 units at $12 $3,400 300 units
  • 38. Lifo Periodic
  • 39. Lifo Periodic 200 units @ $9 Jan. 1 Beginning Inventory 300 units @ $10 Mar. 10 Purchase 400 units @ $11 Sept. 21 Purchase 100 units @ $12 Nov. 18 Purchase 1,000 units lifo, the most recent batch Using available for sale during purchased is considered the first year batch of merchandise sold.
  • 40. Lifo Periodic Jan. 1 Beginning 200 units @ $9 Assume again that Inventory 700 units were sold 300 units @ $10 Mar.during the year. 10 Purchase 400 units @ $11 Sept. 21 Purchase 100 units @ $12 Nov. 18 Purchase 1,000 units available for sale during year
  • 41. Lifo Periodic 200 units @ $9 = $1,800 Jan. 1 Sold unitsof these 100 200 @ $10 300 = 3,000 1,000 Mar. 10 400 units @400 Sold these $11 = 4,400 0 Sept. 21 100 units @100 Sold these $12 = 1,200 0 Nov. 18 1,000 units available $10,400 $2,800 for sale during year Ending Inventory
  • 42. Lifo Periodic Cost of merchandise available for sale $10,400 Less ending inventory 2,800 Cost of merchandise sold $ 7,600
  • 43. Summary of Lifo Periodic Merchandise Merchandise Inventory Available Purchases for Sale $1,800 200 units at $9 $1,800 Jan. 1 $1,000 100 units at $10 200 units at $9 $1,800 $2,800 300 units Mar. 10 300 units at $10 $3,000 Cost of Merchandise Sep. 21 Sold 400 units at $11 $4,400 $2,000 200 units at $10 Nov. 18 100 units at $12 $1,200 $4,400 400 units at $11 1,000 units $10,400 $1,200 100 units at $12 $7,600 700 units
  • 44. Average Periodic
  • 45. Average Cost Periodic 200 units @ $9average cost Beginning The Jan. 1 Inventory periodic method is based on the average cost ofPurchase Mar. 10 300 units @ $10 400 units @identicalSept. 21 Purchase $11 units. 100 units @ $12 Nov. 18 Purchase 1,000 units available for sale during year
  • 46. Average Cost Periodic 200 units @ $9 = $ 1,800 300 units @ $10 = $ 3,000 400 units @ $11 = $ 4,400 100 units @ $11 = $ 1,200 1,000 units available $10,400 Cost of for sale during merchandise year available for sale
  • 47. Average Cost Periodic Cost of Merchandise Available for Sale = Average Unit Cost Units Available for Sale During Year $10,400 = $10.40 per Unit 1,000 Units
  • 48. Average Cost Periodic Cost of merchandise available for sale $10,400 Less ending inventory ($10.40 x 300) 3,120 Cost of merchandise sold $ 7,280 To verify this amount, multiply 700 units sold times $10.40 to get the same $7,280.
  • 49. Inventory Turnover
  • 50. Inventory Turnover SUPERVALU Zale Cost of merchandise sold $15,620,127,000 $ 737,188,000 Inventories: Beginning of year $1,115,529,000 $478,467,000 End of year 1,067,837,000 571,669,000 Total $2,183,366,000 $1,050,136,000 Average $1,091,683,000 $525,068,000 Inventory turnover 14.3 times 1.4 times Use: Inventory turnover measures the relationship between the volume of goods sold and the amount of inventory carried during the period.
  • 51. Number of Days’ Sales in Inventory SUPERVALU Zale Average daily cost of merchandise sold: $15,620,127,000/365 $42,794,868 $737,188,000/365 $2,019,693 Ending inventory $1,067,837,000 $571,669,000 Average selling period 25 days 283 days Use: To assess the efficiency in the management of inventory
  • 52. Universidad Cuauhtémoc Campus Aguascalientes Questions? Maestría en Administración