Title: Teamwork in Action
QA_Ori:
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 actual
cost. Total cost of goods sold is tallied based on these individual cost
assignments. The new inventory balance is perpetually determined to be the
amount after sales at actual cost is deducted.
(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
LIFO Expert:
(a) and (b) Concept:
Purchases are always recorded at actual costs. The LIFO cost flow assumption
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
FIFO Expert:
(a) and (b) Concept:
Purchases are always recorded at actual costs. The FIFO cost flow assumption
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
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 running weighted
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)
* rounded ** adjusted for rounding
(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.
More Specific Expert Comments to (c):
Specific Identification–Always reflects the actual cost flow. Electronic scanning
FIFO–Most businesses try to move their older or earlier acquired inventory first,
LIFO–Few actually sell their most recently acquired inventory first. This could
Weighted Average–This cost is rarely the actual cost flow. This would require the
(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
Specific Identification will result in a cost of goods sold, net income and tax
(e) Valuation
Typical comments experts may express in response to (e):
FIFO tends to value ending inventory closest to replacement cost whereas LIFO
Title: Entrepreneur Decision 1
QA_Ori:
days
Title: Entrepreneur Decision 2
QA_Ori:
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
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 with not
Title: Hitting the Road
QA_Ori:
There is no formal solution for this field activity. The required solution does allow
Title: Global Decision 1
QA_Ori:
Inventory Turnover Days’ Sales in
Inventory
Company Current Prior Year Current Prior Year
Piaggio 4.45 4.15 81.5 85.6
NOTE: COMPUTATIONS FOR POLARIS AND ARCTIC CAT ARE IN BTN
6-2.
Title: Global Decision 2
QA_Ori:
For the current year and prior years, Polaris has the highest inventory
turnover and the lowest days’ sales in inventory. For the current year, Piaggio