module exercise 3

# module exercise 3 - T he FIFO method is the most commonly...

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The FIFO method is the most commonly used in the real-world for two primary reasons. First, the FIFO method typically represents the actual flow of goods for most companies, who prefer to sell older inventory first. Second, in periods of rising inventory costs, FIFO results in higher net income because the older, cheaper units are allocated to cost of goods sold. This makes the company’s financial statements look better. A. Inventory Equation Cost of goods sold = beginning inventory + purchase-ending inventory B. Calculating cost of goods sold Number sold(units sold) = beginning inventory +inventory purchases-ending inventory FIFO

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LIFO
Average cost

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C. Calculating ending inventory FIFO
LIFO

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Average
D. Inventory ratios Gross profit rate = gross profit (sales –sales returns-cost of goods sold (=beginning inventory + purchases – ending inventory-))/net sales Profit margin ratio = net income/net sales Inventory Turnover ratio= cost of goods sold (=beginning inventory + purchases – ending inventory-) / average inventory

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A. Recording sales and impact on net income
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## This note was uploaded on 04/11/2011 for the course FIN 504 taught by Professor Joe during the Fall '10 term at Keller Graduate School of Management.

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module exercise 3 - T he FIFO method is the most commonly...

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