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
Teamwork in Action (Continued)
FIFO Expert:
(a) and (b) Concept:
Purchases are always recorded at actual costs. The FIFO cost flow
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)
Feb.15
100 @ $117.647 = $11,765*
70 @ $117.647 = $ 8,235*
Apr.30
200 @ $150 = $30,000
270 @ $141.611*= $38,235*
(8,235+30,000)/
(70 +200)
Sept 26
300 @ $200 = $60,000
570 @ $172.342* = $98,235*
(38,235 +60,000)/
(270 +300)
Oct. 5
350 @ $172.342 = $60,320
220 @ $172.342* =
$75,085
$37,915**
* 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.
LIFO—Few actually sell their most recently acquired inventory first. This
could follow actual physical flow if inventory is stocked in a manner that
requires accessing most recent cost first.
Weighted Average—This cost is rarely the actual cost flow. This would
require the mixing or combining of units on hand. This is possible for
consequences somewhere in between LIFO and FIFO.
Specific Identification will result in a cost of goods sold, net income and tax
expense dependent on whether the actual cost of units sold were the higher
or lower priced items.
(e) Valuation
Entrepreneurial Decision — BTN 5-7
Part 1
(a) Current inventory turnover = $120,000 / $30,000 = 4 times
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
Global Decision — BTN 5-9
1. Inventory turnover =
Current year — Samsung (in millions of Korean won):
Inventory turnover = = 7.47 times
2. For the current year, Apple has the highest inventory turnover and
Google has the lowest days’ sales in inventory. For the prior year,
year.
Cost of sales
Average inventory
₩137,696,309
(₩19,134,868 + ₩17,747,413) /2