211c8m4 - Introduction to Financial Accounting Chapter 8...

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Introduction to Financial Accounting AMIS 211 – Professor Marc Smith 1 Chapter 8, Module 4 Chapter 8, Module 4 Slide 1 AMIS 211 Introduction to Financial Accounting Professor Marc Smith Chapter 8 Module 4 Chapter 8 Module 4 Hi everyone. Welcome back. Now that we know all about LIFO and FIFO and Weighted Average and the assumptions each of those make; let’s go ahead and see if we can put our knowledge to test. And, let’s go ahead and look at a problem from the Web site. So, please have the Example in front of you from the Web site. And, let’s just take a look at it together. Here is what it says: “Inventory data for XYZ Company during the month of May consisted of the following.”
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Introduction to Financial Accounting AMIS 211 – Professor Marc Smith 2 Chapter 8, Module 4 And, you can see the purchases of inventory, the sales of inventory, and the Beginning Inventory that XYZ Company had. The problem asks us to do this: To calculate the Ending Inventory and Cost of Goods Sold amounts under each of the three (3) Cost Flow methods (FIFO, LIFO and Weighted Average). And remember: that is the key question that we had to answer. How do we take the Total Inventory Cost and spread it between Cost of Goods Sold and Ending Inventory. The answer was, of course: It depends on the Cost Flow method that we are using. So, let’s see if we can put the problem and the numbers together and come up with these answers. Let’s go ahead to the next slide.
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Introduction to Financial Accounting AMIS 211 – Professor Marc Smith 3 Chapter 8, Module 4 Slide 2 Chapter 8 Module 4: Example #1 FIFO (first-in, first-out) - assumes the oldest inventory items purchased are the first goods to be sold Cost of Goods Sold (units sold = 17 + 15 + 8 = 40) : Date Units Unit Cost Cost of Goods Sold 05/01 8 $2.00 $ 16.00 05/04 25 3.00 75.00 05/13 7 4.50 31.50 Totals 40 $122.50 And, let’s start with FIFO. Remember FIFO—first-in, first-out—assumes that the oldest inventory that we have is the first inventory we sell. So, we are assuming all of the old inventory is what we are selling to our customers. We need to start by figuring out how many units we actually sold. And, this is not too, too hard. We just go to the problem where it says: “sold;” and count the units. We know on May the 9 th we sold 17 units. On May 18 th , we sold another 15 units. And then, on May 27 th , another 8 units were sold. The total number of units sold: 40. Now, under FIFO, we are assuming it is the first, or oldest, units that we had that are being sold. The oldest units that we have are those in Beginning Inventory.
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Introduction to Financial Accounting AMIS 211 – Professor Marc Smith 4 Chapter 8, Module 4 So, we will start by taking those 8 units from May the 1 st —each having a $2.00 cost—and assuming those were sold. But, we are not done yet, right?
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This note was uploaded on 04/21/2008 for the course ACCT 211m taught by Professor Zeigler/smith during the Winter '07 term at Ohio State.

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211c8m4 - Introduction to Financial Accounting Chapter 8...

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