ch6B(1)

# ch6B(1) - DETERMINING INVENTORIABLE COSTS All costs...

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All costs necessary to acquire the goods and prepare them ready for sale are included in inventoriable costs . Inventoriable costs include the invoice price plus freight-in less purchase discounts and purchase returns and allowances. Inventoriable costs as a pool of costs consisting of : 1) Cost of beginning inventory and 2) Cost of goods purchased during the period. 1) + 2) = cost of goods available for sale DETERMINING INVENTORIABLE COSTS

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ALLOCATING INVENTORIABLE COSTS Inventoriable costs are allocated between ending inventory and cost of goods sold . Under a periodic inventory system , the allocation is made at the end of the accounting period. 1 determine the costs assignable to the ending inventory 2 cost of goods available for sale - cost of ending inventory = cost of goods sold 3 sales revenues - cost of goods sold = gross profit (in accordance with the matching principle )
ALLOCATING (MATCHING) POOL OF COSTS - PERIODIC \$120,000

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USING ACTUAL PHYSICAL FLOW COSTING Costing of the inventory is complicated because the units on hand for a specific item of inventory may have been purchased at different prices. The specific identification method t racks the actual physical flow of the goods. Each item of inventory is marked, tagged, or coded with its specific unit cost. Items still in inventory at year end are specifically costed to arrive at the total cost of the ending inventory.
USING ASSUMED COST FLOW METHODS Since specific identification is often impractical, other cost flow methods are allowed. The se method s assume flows of costs that may be unrelated to the physical flow of goods. For this reason, we call them assumed cost flow methods or cost flow assumptions . They are: 1 First-in, first-out ( FIFO ). 2 Last-in, first-out ( LIFO ). 3 Average cost .

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FIFO method FIFO assumes that the earliest goods purchased are the first to be sold. Under FIFO, the
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## This note was uploaded on 05/21/2011 for the course ACY 1111 taught by Professor Km during the Spring '10 term at CUHK.

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ch6B(1) - DETERMINING INVENTORIABLE COSTS All costs...

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