Teamwork in Action — BTN 5-6
Concepts and procedures to illustrate in expert presentation:
Specific Identification Expert:
(a) and (b) Concept:
Purchases are always recorded at the actual specific costs. The specific
identification cost flow assumption requires units sold be assigned their
(a) and (b) Procedures:
Date Goods Purchased Cost of Goods Sold Inventory Balance
Jan. 1 50 @ $100 = $ 5,000
Jan.10 30 @ $ 100 = $ 3,000 20 @ $100 = $ 2,000
Jan.14 150 @ $120 = $18,000 20 @ $100 = $ 2,000
150 @ $120 = 18,000
$20,000
Feb.15 100 @ $ 120 = $12,000 20 @ $100 = $ 2,000
50 @ $120 = 6,000
$ 8,000
Oct. 5 100 @ $ 150 = $15,000
250 @ $ 200 = $50,000
20 @ $100 = $ 2,000
50 @ $120 = 6,000
100 @ $150 = 15,000
50 @ $200 = 10,000
$80,000 $33,000
Teamwork in Action (Continued)
LIFO Expert:
(a) and (b) Concept:
Purchases are always recorded at actual costs. The LIFO cost flow
assumption requires (i) units sold be assigned the most recent cost—total
(a) and (b) Procedures:
Date Goods Purchased Cost of Goods Sold Inventory Balance
Jan. 1 50 @ $100 = $ 5,000
Jan.10 30 @ $100 = $ 3,000 20 @ $100 = $ 2,000
Jan.14 150 @ $120 = $18,000 20 @ $100 = $ 2,000
150 @ $120 = 18,000
$20,000
Oct. 5 300 @ $200 = $60,000
50 @ $150 = $ 7,500
______
20 @ $100 = $ 2,000
50 @ $120 = 6,000
150 @ $150 = 22,500
$82,500 $30,500
Teamwork in Action (Continued)
FIFO Expert:
(a) and (b) Concept:
Purchases are always recorded at actual costs. The FIFO cost flow
assumption requires units sold be assigned the first (earliest) cost of
(a) and (b) Procedures:
Date Goods Purchased Cost of Goods Sold Inventory Balance
Jan. 1 50 @ $100 = $ 5,000
Jan.10 30 @ $100 =$ 3,000 20 @ $100 = $ 2,000
Sept 26 300 @ $200 = $60,000 70 @ $120 = $ 8,400
200 @ $150 = 30,000
300 @ $200 = 60,000
$98,400
Oct. 5 70 @ $120 = $ 8,400
200 @ 150 = 30,000
80 @ 200 = 16,000 220 @ $200 = $44,000 .
$69,000 $44,000
Teamwork in Action (Continued)
Weighted Average Expert:
(a) and (b) Concept:
Purchases are always recorded at actual costs. The Weighted Average
cost flow assumption requires units sold be assigned a cost based on
(a) and (b) Procedures:
Date Goods Purchased Cost of Goods Sold Inventory Balance
Jan. 1 50 @ $100 = $ 5,000
Jan.10 30 @ $100 = $ 3,000 20 @ $100 = $ 2,000
Jan.14 150 @ $120 = $18,000 170 @ $117.647 = $20,000
(2,000 +18,000)/
(20+150)
Teamwork in Action (Concluded)
(c) Cost Flow versus Actual Physical Flow
Typical comments experts may express in response to (c):
Physical flow of goods can be affected by the type of products in
More Specific Expert Comments to (c):
Specific Identification–Always reflects the actual cost flow. Electronic
scanning has increased the ability to use this method in businesses that sell
homogeneous goods.
FIFO–Most businesses try to move their older or earlier acquired inventory
first, particularly if they sell perishable goods. Therefore, FIFO will frequently
reflect the physical flow of goods.
(d) Impact of Methods
Typical comments experts may express in response to (d):
In a period of rising prices LIFO will generally result in the highest cost of
goods sold and therefore the lowest net income and lowest tax. However,
LIFO must be used for financial reporting if it is used for tax purposes.
(e) Valuation
Typical comments experts may express in response to (e):
FIFO tends to value ending inventory closest to replacement cost whereas
LIFO does not. Weighted average tends to value inventory between old and
Entrepreneurial Decision — BTN 5-7
Part 1
(a) Current inventory turnover = $120,000 / $30,000 = 4 times
(b) Proposed inventory turnover = $120,000 / $15,000 = 8 times
= 45.63 days
*Ratio definitions:
Inventory turnover =
Part 2
The owners’ proposal for their company would yield a much improved
inventory turnover of 8 vis-à-vis the current turnover of 4. On the
downside, its days’ sales in inventory would dramatically decline from
Hitting the Road — BTN 5-8
There is no formal solution for this field activity. The required solution
does allow students to see the relevance of studying merchandise
activities and inventory accounting.
Cost of goods sold
Average inventory
Global Decision — BTN 5-9
1. Inventory turnover =
Current year — Samsung (in millions of Korean won):
Inventory turnover = = 7.47 times
Days’ sales in inventory = x 365
Current year —Samsung days’ sales in inventory (in mil. of Korean won):
x 365 days = 50.72 days
Inventory Turnover Days’ Sales in Inventory
Company Current Prior Year Current Prior Year
Samsung………….…………………………..7.47 7.57 50.72 51.15
2. For the current year, Apple has the highest inventory turnover and
Google has the lowest days’ sales in inventory. For the prior year,
Apple has the highest inventory turnover and lowest days’ sales in
Cost of sales
Average inventory
Ending Inventory
Costs of Goods Sold
₩126,651,931
( 17,747,413 + 15,716,715) /2₩ ₩
137,696,309₩
( 19,134,868 + 17,747,413) /2₩ ₩
19,134,868₩
₩137,696,309