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Inventory Cost Flow Methods and Valuation Techniques: A Comprehensive Analysis

Detailed assessment of inventory valuation methods and cost flow assumptions.

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    Inventory Cost Flow Methods and Valuation Techniques: A Comprehensive Analysis E8 - 13, E8 - 14, E8 - 18, P8 - 5, E9 - 19, E9 - 21, and P9 - 1. E 8 – 13 - Altira Corporation - Inventory cost flow methods; periodic system ● LO1 LO4 Altira Corporation uses a periodic inve ntory system. The following information related to its merchandise inventory during the month of August 2011 is available: Required: Determine the inventory balance Altira would report in its August 31, 2011, balance sheet and the cost of goods sold it would report in its August 2011 income statement using each of the following cost flow methods: 1. First - in, first - out (FIFO) 2. Last - in, first - out (LIFO) 3. Average cost Exercise 8 - 13 Cost of goods available for sale: Beginning inventory (2,000 x $6.10) $12,200 Purchases: 10,000 x $5.50 $55,000 6,000 x $5.00 30,000 85,000 Cost of goods available (18,000 units) $97,200 First - in, first - out (FIFO) Cost of goods available for sale (18,000 units) $97,200 Less: Ending inventory (determined below) (15,000 ) Cost of goods sold $82,200 Cost of ending inventory:

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    Date of purchase Units Unit cost Total cost August 18 3,000 $5.00 $15,000 Last - in, first - out (LIFO) Cost of goods available for sale (18,000 units) $97,200 Less: Ending inventory (determined below) (17,700 ) Cost of goods sold $79,500 Cost of ending inventory: Date of purchase Units Unit cost Total cost Beg. Inv. 2,000 $6.10 $12,200 August 8 1,000 5.50 5,500 Total $17,700 Average cost Cost of goods available for sale (18,000 units) $97,200 Less: Ending inventory (determined below) (16,200 ) Cost of goods sold $81,000 * Cost of ending inventory: $97,200

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    Weighted - average unit cost = = $5.40 18,000 units 3,000 units x $5.40 = $16,200 * Alternatively, could be determined by multiplying the units sold by the average cost: 15,000 units x $5.40 = $81,000 E 8 – 14 - Altira Corporation - Inventory cost flow methods; perpetual system ● LO1 LO4 [This is a variation of Exercise 8 – 13 modified to focus on the perpetual inventory system and alternative cost flow methods.] Altira Corporation uses a perpetual inventor y system. The following transactions affected its merchandise inventory during the month of August 2011: Required: Determine the inventory balance Altira would report in its August 31, 2011, balance sheet and the cost of goods sold it would report in its August 2011 income statement using each of the following cost flow methods: 1. First - in ,first - out (FIFO) 2. Last - in, first - out (LIFO) 3. Average cost Exercise 8 - 14 First - in, first - out (FIFO) Cost of goods sold: Date of Cost of sale Units sold Units Sold Total Cost Aug. 14 2,000 (from Beg. Inv.) $6.10 $12,200 6,000 (from 8/8 purchase) 5.50 33,000 Aug. 25 4,000 (from 8/8 purchase) 5.50 22,000

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    3,000 (from 8/18 purchase) 5.00 15,000 Total 15,000 $82,200 Ending inventory = 3,000 units x $5.00 = $15,000 Last - in, first - out (LIFO) Date Purchased Sold Balance Beginning inventory 2,000 @ $6.10 = $12,200 2,000 @ $6.10 $12,200 August 8 10,000 @ $5.50 = $55,000 2,000 @ $6.10 10,000 @ $5.50 $67,200 August 14 8,000 @ $ 5.50 = $44,000 2,000 @ $6.10 2,000 @ $5.50 $23,200 August 18 6,000 @ $5.00 = $30,000 2,000 @ $6.10 2,000 @ $5.50 $53,200 6,000 @ $5.00

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