Importantly the assumptions bear no relation to the

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Unformatted text preview: ns. Importantly, the assumptions bear no relation to the physical flow of goods; they are merely used to assign costs to inventory units. (Note: FIFO and LIFO are pronounced with a long “i” and long “o” vowel sound). Another method that will be discussed shortly is the specific identification method; as its name suggests, it does not depend on a cost flow assumption. Download free ebooks at 26 Inventory Costing Methods Current Assets: Part II 6.3 First-in, First-out Calculations With first-in, first-out, the oldest cost (i.e., the first in) is matched against revenue and assigned to cost of goods sold. Conversely, the most recent purchases are assigned to units in ending inventory. For Mueller’s nails the FIFO calculations would look like this: Please click the advert Budget-Friendly. Knowledge-Rich. The Agilent InfiniiVision X-Series and 1000 Series offer affordable oscilloscopes for your labs. Plus resources such as lab guides, experiments, and more, to help enrich your curriculum and make your job easier. Scan for free Agilent iPhone Apps or visit See what Agilent can do for you. © Agilent Technologies, Inc. 2012 u.s. 1-800-829-4444 canada: 1-877-894-4414 Download free ebooks at 27 Inventory Costing Methods Current Assets: Part II 6.4 Last-in, First-out Calculations Last-in, first-out is just the reverse of FIFO; recent costs are assigned to goods sold while the oldest costs remain in inventory: 6.5 Weighted average Calculations The weighted-average method relies on average unit cost to calculate cost of units sold and ending inventory. Average cost is determined by dividing total cost of goods available for sale by total units available for sale. Mueller Hardware paid $330 for 300 pounds of nails, producing an average cost of $1.10 per pound ($330/300). The ending inventory consisted of 140 pounds, or $154. The cost of goods sold was $176 (160 pounds X $1.10): 6.6 Preliminary Recap and Comparison The preceding discussion is summarized by the following comparative illustrations. Examine each, noting how the cost of beginning inventory and purchases flow to ending inventory and cost of goods sold. As you examine this drawing, you need to know that accountants usually adopt one of these cost flow assumptions to track inventory costs within the accounting system. The actual physical flow of the inventory may or may not bear a resemblance to the adopted cost flow assumption. Download free ebooks at 28 Inventory Costing Methods Current Assets: Part II 6.7 Detailed Illustrations Having been introduced to the basics of FIFO, LIFO, and weighted-average, it is now time to look at a more comprehensive illustration. In this illustration, there will also be some beginning inventory that is carried over from the preceding year. Assume that Gonzales Chemical Company had a beginning inventory balance that consisted of 4,000 units with a cost of $12 per unit. Purchases and sales are shown in the sch...
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