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Teamwork in Action — BTN 6-6
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
(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
Teamwork in Action (Continued)
LIFO Expert:
(a) and (b) Concept:
Purchases are always recorded at actual costs. The LIFO cost flow
(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
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
purchases. Total cost of goods sold is tallied based on these individual
cost assignments. The inventory balance is perpetually determined to be
the amount after deducting goods sold using the earliest costs.
(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
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
* rounded ** adjusted for rounding
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
inventory and/or the way inventory is stored and/or displayed.
Actual physical flow of goods is not relevant in selecting an acceptable
method of accounting for inventory. Any one of the four methods is
acceptable. The method chosen should be consistently applied.
More Specific Expert Comments to (c):
Specific Identification--Always reflects the actual cost flow. Electronic
(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,
(e) Valuation
Typical comments experts may express in response to (e):
FIFO tends to value ending inventory closest to replacement cost whereas
Entrepreneurial Decision — BTN 6-7
Part 1
(a) Current inventory turnover = $120,000 / $30,000 = 4 times
*Ratio definitions:
Inventory turnover =
Days’ sales in inventory = x 365
Part 2
The owners’ proposal for their company would yield a much improved
We need to recognize that the major concern with this proposal is with
the company’s confidence in both maintaining its current sales level and
Cost of goods sold
Average inventory
Ending inventory
Cost of goods sold
Hitting the Road — BTN 6-8
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.
Global Decision — BTN 6-9
1. Inventory turnover =
Current year — Samsung (in millions of Korean won):
One year prior — Samsung (in millions of Korean won):
Days’ sales in inventory = x 365
Current year —Samsung days’ sales in inventory (in mil. of Korean won):
Current year —Samsung days’ sales in inventory (in mil. of Korean won):
Inventory Turnover Days’ Sales in Inventory
Company Current Prior Year Current Prior Year
Samsung...........................................7.47 7.57 50.72 51.15
Note: Computations for Apple and Google are in BTN #2.
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
₩17,747,413
₩126,651,931
(₩17,747,413 + ₩15,716,715) /2
(₩19,134,868 + ₩17,747,413) /2
₩19,134,868
₩137,696,309
