Inventory Valuation Standards 0 BCS-PAI-4 d. Identify and explain the advantages and disadvantages...
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- Slide 1
- Slide 2
- Inventory Valuation
- Slide 3
- Standards 0 BCS-PAI-4 d. Identify and explain the advantages
and disadvantages of different types of accounting systems. 0
BCS-PAI-4 g. Analyze business transactions and their effect on the
accounting equation.
- Slide 4
- Objectives 0 Students will be able to explain the difference
between the three cost assumption methods to value ending
inventory. 0 Students will be able to value inventory using the
LIFO, FIFO, and Average Cost methods.
- Slide 5
- What is inventory? 0 Will eventually bring in revenue 0
Merchandise 0 Finished Goods 0 Work in process 0 Raw materials
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- What determines how we value inventory? 0 What type of business
we are in? 0 Retail, manufacturing 0 How much variance there is in
the unit cost for purchases
- Slide 7
- Ways to value inventory 0 Specific Identification 0
Identification by specific item, barcode, etc. 0 Ex. VIN # on car
lots 0 Cost Flow assumptions 0 Firstin-First-out 0
Last-in-First-out 0 Average Cost Method
- Slide 8
- First-in-First-Out 0 Assumes that the first items in the door
are the first items that will be sold 0 Assumes that ending
inventory must consist of only the most recent purchases 0 Ending
inventory is valued using the most recent purchases going
backward.
- Slide 9
- FIFO contd DateExplanationUnitsUnit CostTotal Cost Jan
1Beginning Inventory25$30$750 Feb 1Purchases50 251250 Apr
10Purchases40301200 May 15Purchases2025500 Sep 1Purchases25 625 Dec
1Purchases40301250 Total available for sale2005575 Ending
Inventory30 Units Sold170
- Slide 10
- FIFO contd 0 Ending Inventory 0 Total units *most recent prices
Dec 1 Purchase price 30 * 30 = $900 *note use the price until you
get the pricing on all of the units 0 Cost of Goods Sold Available
for sale Less ending inventory 5575 -900 COGS $ 4625
- Slide 11
- Last-in-First-Out 0 Assumes that the last items in the door are
the first items that will be sold 0 Assumes that ending inventory
must consist of oldest purchases 0 Ending inventory is valued using
the oldest recent purchases going forward.
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- LIFO contd DateExplanationUnitsUnit CostTotal Cost Jan
1Beginning Inventory25$30$750 Feb 1Purchases50 251250 Apr
10Purchases40301200 May 15Purchases2025500 Sep 1Purchases25 625 Dec
1Purchases40301250 Total available for sale2005575 Ending
Inventory30 Units Sold170
- Slide 13
- LIFO contd 0 Ending Inventory 0 Total units *oldest prices
Beginning inventory $750 (25 units) Feb 1 purchase 5 units 5 * 25 =
125 750+ 125 = 875 0 Cost of Goods Sold Available for sale Less
ending inventory 5575 -875 COGS $ 4700
- Slide 14
- Average Cost Method 0 Assumes that the unit cost of inventory
will remain basically the same throughout the period 0 Ending
inventory is valued using the total value of units available during
period divided by total units available. This gives you the average
unit cost.
- Slide 15
- Average cost contd DateExplanationUnitsUnit CostTotal Cost Jan
1Beginning Inventory25$30$750 Feb 1Purchases50 251250 Apr
10Purchases40301200 May 15Purchases2025500 Sep 1Purchases25 625 Dec
1Purchases40301250 Total available for sale2005575 Ending
Inventory30 Units Sold170
- Slide 16
- Average Cost Method contd 0 Ending Inventory Value of total
available Inventory $5575 divided by Available units 200 Cost per
unit 27.88 Times units in Ending inventory 30 Ending inventory
$836.40 0 Cost of Goods Sold Available for sale Less ending
inventory $ 5575.00 -836.40 COGS $ 4738.60
- Slide 17
- Why do care how we value it? 0 We have to pay taxes on it 0 It
affects cost of goods sold, which affects our profits
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- QUIZ
- Slide 19
- Which method assumes that the first items in the door are the
first items that will be sold? 0 A. FIFO A. FIFO 0 C. LIFO C. LIFO
0 D. Specific Identification D. Specific Identification 0 B.
Average Cost B. Average Cost
- Slide 20
- Which method assumes that the unit cost of inventory will
remain basically the same throughout the period? 0 A. FIFO A. FIFO
0 C. LIFO C. LIFO 0 D. Specific Identification D. Specific
Identification 0 B. Average Cost B. Average Cost
- Slide 21
- Which method assumes that ending inventory is valued using the
most recent purchases going backward? 0 A. FIFO A. FIFO 0 C. LIFO
C. LIFO 0 D. Specific Identification D. Specific Identification 0
B. Average Cost B. Average Cost
- Slide 22
- Which is not a cost assumption valuation method? 0 A. FIFO A.
FIFO 0 C. Specific Identification C. Specific Identification 0 B.
LIFO B. LIFO 0 D. Average Cost Method D. Average Cost Method
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- Which type of company would use specific identification to
value inventory? 0 A. Retail A. Retail 0 C. Manufacturing C.
Manufacturing 0 B. Car Dealership B. Car Dealership 0 D. Small
Business D. Small Business
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- Which is not something to consider when choosing a valuation
method? 0 A. The way we have always done it A. The way we have
always done it 0 C. How often the unit costs changes during the
accounting period C. How often the unit costs changes during the
accounting period 0 B. The type of business that we are in B. The
type of business that we are in 0 D. Which gives a better
representation of actual cost of the goods that were sold D. Which
gives a better representation of actual cost of the goods that were
sold
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- The FIFO method assumes that the first items in the door are
the first items that will be sold. 0 True True 0 False False
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- The LIFO method assumes that ending inventory must consist of
only the most recent purchases. 0 True True 0 False False
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- There is only one appropriate way to value inventory? 0 True
True 0 False False
- Slide 28
- A company may change their valuation methods often so that they
can show a profit? 0 True True 0 False False
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- The end
- Slide 30
- Correct! Great Job!!
- Slide 31
- Sorry, incorrect! Try Again