Ch07 - Inventory - Chapter 7 Inventory and Cost of Goods...

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Unformatted text preview: Chapter 7 Inventory and Cost of Goods Sold Overview Inventory costing methods Valuation: Lower of cost or market Errors in measuring inventory Processing systems: periodic vs. perpetual Creative accounting inventory 7-1 Overview 7-2 Inventory Information Systems Provide information for Provide information for financial statements financial statements Provide information to Provide information to protect inventory assets protect inventory assets Primary goals of accounting system 7-3 Provide information to Provide information to management about management about inventory quantities inventory quantities Flow of Inventory Costs Merchandiser (e.g. Williams-Sonoma) Merchandise Purchases Cost of Goods Sold Merchandise Inventory Purchased in finished form Resold without transformation 7-4 At FYE 2008: $573 m For FYE 2008: $2,226 m Flow of Inventory Costs Manufacturer (e.g. Daimler) 7-5 Raw Materials Direct Labor Factory Overhead Raw Materials Inventory Work in Process Inventory Finished Goods Inventory Cost of Goods Sold Inventory Cost Cost principle Cost principle Inventory is recorded at the price paid, including all costs incurred to bring the asset to useable or saleable condition and location. Example: Williams Sonoma purchases pans as follows: Purchase price of the inventory $2,100 + Freight-in (cost to transport goods) 190- Purchase returns damaged goods (50)- Purchase discounts for early payment (40) = Net cost to buyer $2,200 7-6 Flow of Inventory and Cost of Goods Sold Beg inv 694 Purchases 2,105 Cost of goods 2,799 available for sale 2,226 Cost of Goods Sold Ending inv 573 Merchandise Inventory ($m) Beginning inventory + Purchases Ending inventory = Cost of goods sold Restated as a formula: 7-7 For Williams-Sonoma: Inventory Costing Methods 7-8 Inventory Costing Methods As inventory is sold, need method to assign unit costs to inventory sold. Why? Specific identification FIFO LIFO Average cost 7-9 The unit cost of inventory changes during the year, often due to inflation. Four methods are available to assign costs to inventory: Specific Identification Specific cost of each inventory item is known. Used with low volume, high dollar inventory. 7-10 I know the VIN (Vehicle Identification number) of each car Specific Identification If the blue car is sold, for what amount should inventory be credited and cost of goods sold be debited?...
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This note was uploaded on 11/24/2009 for the course UGBA 102A taught by Professor Udpa during the Fall '07 term at University of California, Berkeley.

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Ch07 - Inventory - Chapter 7 Inventory and Cost of Goods...

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