ACCT 210 Lecture, Fall 2008

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-1 INVENTORIES AND COST OF GOODS SOLD Chapter 8 © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-2 Inventory Inventory Goods owned and held for sale to customers Goods owned and held for sale to customers Current asset Current asset Inventory Defined Inventory Defined © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-3 INCOME STATEMENT Revenue Cost of goods sold Gross profit Expenses Net income Purchase costs (or manufacturing costs) as goods are sold BALANCE SHEET Asset Inventory The Flow of Inventory Costs The Flow of Inventory Costs © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-4 GENERAL JOURNAL Date Account Titles and Explanation P R Debit Credit Entry on Purchase Date Inventory $$$$ Accounts Payable $$$$ Entry on Sale Date Cost of Goods Sold $$$$ Inventory $$$$ In a perpetual inventory system, inventory entries parallel the flow of costs. The Flow of Inventory Costs The Flow of Inventory Costs © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-5 When identical units of inventory have different unit costs, a question naturally arises as to which of these costs should be used in recording a sale of inventory. Which Unit Did We Sell? Which Unit Did We Sell? © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-6 A separate subsidiary account is maintained for each item in inventory. A separate subsidiary account is maintained for each item in inventory. How can we determine the unit cost for the Sept. 10 sale? Item LL002 Primary supplier Electronic City Description Laser Light Secondary supplier Electric Company Location Storeroom 2 Inventory level: Min: 25 Max: 200 Purchased Sold Balance Date Units Unit Cost Total Units Unit Cost Cost of Goods Sold Units Unit Cost Total Sept. 5 100 $ 30 $ 3,000 100 $ 30 3,000 $ Sept. 9 75 50 3,750 100 30 3,000 75 50 3,750 Sept. 10 10 ? ? ? ? ? ? ? ? Inventory Subsidiary Ledger Inventory Subsidiary Ledger © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-7 Learning Objective Learning Objective LO1 In a perpetual inventory system, you are to determine the cost of goods sold using (a) specific identification, (b) average cost, (c) FIFO, and (d) LIFO. You should be able to discuss the advantages and shortcomings of each method. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-8 We use one of these inventory valuation methods to determine cost of inventory sold. Inventory Cost Flows Inventory Cost Flows Specific Identification Average Cost LIFO FIFO FIFO © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-9 The Bike Company (TBC) Data for an Illustration Data for an Illustration © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-10 Specific Identification Specific Identification When a unit is sold, its specific cost is added to cost of goods sold. When a unit is sold, its specific cost is added to cost of goods sold. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-11 On August 14, TBC sold 20 bikes for $130 each. On August 14, TBC sold 20 bikes for $130 each. Of the bikes sold 9 originally cost $91 and Of the bikes sold 9 originally cost $91 and 11 cost $106. 11 cost $106. On August 14, TBC sold 20 bikes for $130 each. On August 14, TBC sold 20 bikes for $130 each. Of the bikes sold 9 originally cost $91 and Of the bikes sold 9 originally cost $91 and 11 cost $106. 11 cost $106. Specific Identification Specific Identification © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-12 The Cost of Goods Sold for the August 14 sale is The Cost of Goods Sold for the August 14 sale is $1,985, leaving $515 and 5 units in inventory. $1,985, leaving $515 and 5 units in inventory. The Cost of Goods Sold for the August 14 sale is The Cost of Goods Sold for the August 14 sale is $1,985, leaving $515 and 5 units in inventory. $1,985, leaving $515 and 5 units in inventory. Let’s look at the entries for the Aug. 14 sale. Let’s look at the entries for the Aug. 14 sale. Specific Identification Specific Identification © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-13 Retail (20 × $103) Retail (20 × $103) Cost Cost A similar entry is made after each sale. A similar entry is made after each sale. Specific Identification Specific Identification © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-14 Additional purchases were made on August 17 and 28. Costs associated with sales on August 31 were as follows: 1 @ $91, 3 @ $106, 15 @ $115, & 4 @ $119. Additional purchases were made on August 17 and 28. Costs associated with sales on August 31 were as follows: 1 @ $91, 3 @ $106, 15 @ $115, & 4 @ $119. Specific Identification Specific Identification Cost of Goods Sold for August 31 = $2,610 Cost of Goods Sold for August 31 = $2,610 © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-15 Balance Sheet Inventory = $1,395 Income Statement COGS = $4,595 1 @ 106 $ = 106 $ 5 @ 115 $ = 575 6 @ 119 $ = 714 End. Inv. 1,395 $ 1 @ 106 $ = 106 $ 5 @ 115 $ = 575 6 @ 119 $ = 714 End. Inv. 1,395 $ Specific Identification Specific Identification © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-16 Since specific identification is so easy, can’t we use it all the time? Not really. Specific Not really. Specific identification is hard to use identification is hard to use when we sell a lot of inventory when we sell a lot of inventory that has lots of different costs. that has lots of different costs. Specific Identification Specific Identification © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-17 Cost of Goods Available for Sale Units on hand on the date of sale ÷ Average-Cost Method Average-Cost Method When a unit is sold, the average cost of each unit average cost of each unit in inventory is assigned to cost of goods sold. When a unit is sold, the average cost of each unit average cost of each unit in inventory is assigned to cost of goods sold. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-18 On August 14, TBC sold 20 bikes for $130 each. On August 14, TBC sold 20 bikes for $130 each. On August 14, TBC sold 20 bikes for $130 each. On August 14, TBC sold 20 bikes for $130 each. The average cost per unit must be computed prior to each sale. The average cost per unit must be computed prior to each sale. Average-Cost Method Average-Cost Method $2,500  25 = $100 $2,500  25 = $100 © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-19 The average cost per The average cost per unit is $100. unit is $100. The average cost per The average cost per unit is $100. unit is $100. Let’s look at the entries for the Aug. 14 sale. Average-Cost Method Average-Cost Method $100 = $2,500  25 $100 = $2,500  25 © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-20 Retail Retail Cost Cost A similar entry is made after each sale. A similar entry is made after each sale. A similar entry is made after each sale. A similar entry is made after each sale. Average-Cost Method Average-Cost Method © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-21 Additional purchases were made on August 17 Additional purchases were made on August 17 and August 28. and August 28. On August 31, an additional 23 units were sold. On August 31, an additional 23 units were sold. Additional purchases were made on August 17 Additional purchases were made on August 17 and August 28. and August 28. On August 31, an additional 23 units were sold. On August 31, an additional 23 units were sold. Average-Cost Method Average-Cost Method © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-22 $114 = $3,990  35 $114 = $3,990  35 Average-Cost Method Average-Cost Method © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-23 $114 = $3,990  35 $114 = $3,990  35 The average cost per unit is $114. The average cost per unit is $114. Average-Cost Method Average-Cost Method © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-24 Income Statement COGS = $4,622 Balance Sheet Inventory = $1,368 $114 × 12 = $1,368 $114 × 12 = $1,368 Average-Cost Method Average-Cost Method © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-25 Costs of Goods Sold Costs of Goods Sold Ending Inventory Ending Inventory Oldest Costs Oldest Costs Recent Costs Recent Costs First-In, First-Out Method (FIFO) First-In, First-Out Method (FIFO) © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-26 On August 14, TBC sold 20 bikes for $130 each. On August 14, TBC sold 20 bikes for $130 each. On August 14, TBC sold 20 bikes for $130 each. On August 14, TBC sold 20 bikes for $130 each. The Cost of Goods Sold for the August 14 sale is $1,970, The Cost of Goods Sold for the August 14 sale is $1,970, leaving $530 and 5 units in inventory. leaving $530 and 5 units in inventory. The Cost of Goods Sold for the August 14 sale is $1,970, The Cost of Goods Sold for the August 14 sale is $1,970, leaving $530 and 5 units in inventory. leaving $530 and 5 units in inventory. First-In, First-Out Method (FIFO) First-In, First-Out Method (FIFO) © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-27 Retail Retail Cost Cost A similar entry is made after each sale. A similar entry is made after each sale. A similar entry is made after each sale. A similar entry is made after each sale. First-In, First-Out Method (FIFO) First-In, First-Out Method (FIFO) © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-28 Additional purchases were made on Aug. 17 and Aug. 28. On August 31, an additional 23 units were sold. Additional purchases were made on Aug. 17 and Aug. 28. On August 31, an additional 23 units were sold. First-In, First-Out Method (FIFO) First-In, First-Out Method (FIFO) Cost of Goods Sold for August 31 = $2,600 Cost of Goods Sold for August 31 = $2,600 Cost of Goods Sold for August 31 = $2,600 Cost of Goods Sold for August 31 = $2,600 © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-29 Balance Sheet Inventory = $1,420 Income Statement COGS = $4,570 2 @ $115 = 230 $ 10 @ $119 = 1,190 End. Inv. 1,420 $ 2 @ $115 = 230 $ 10 @ $119 = 1,190 End. Inv. 1,420 $ First-In, First-Out Method (FIFO) First-In, First-Out Method (FIFO) © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-30 Costs of Goods Sold Costs of Goods Sold Ending Inventory Ending Inventory Recent Costs Recent Costs Oldest Costs Oldest Costs Last-In, First-Out Method (LIFO) Last-In, First-Out Method (LIFO) © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-31 On August 14, TBC sold 20 bikes for $130 each. On August 14, TBC sold 20 bikes for $130 each. Last-In, First-Out Method (LIFO) Last-In, First-Out Method (LIFO) The Cost of Goods Sold for the August 14 sale is $2,045, leaving $455 and 5 units in inventory. The Cost of Goods Sold for the August 14 sale is $2,045, leaving $455 and 5 units in inventory. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-32 Retail Retail Cost Cost A similar entry is made after each sale. A similar entry is made after each sale. A similar entry is made after each sale. A similar entry is made after each sale. Last-In, First-Out Method (LIFO) Last-In, First-Out Method (LIFO) © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-33 Last-In, First-Out Method (LIFO) Last-In, First-Out Method (LIFO) Additional purchases were made on Aug. 17 and Aug. 28. Additional purchases were made on Aug. 17 and Aug. 28. On Aug. 31, an additional 23 units were sold. On Aug. 31, an additional 23 units were sold. Additional purchases were made on Aug. 17 and Aug. 28. Additional purchases were made on Aug. 17 and Aug. 28. On Aug. 31, an additional 23 units were sold. On Aug. 31, an additional 23 units were sold. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-34 Last-In, First-Out Method (LIFO) Last-In, First-Out Method (LIFO) Cost of Goods Sold for August 31 = $2,685 Cost of Goods Sold for August 31 = $2,685 © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-35 Balance Sheet Inventory = $1,260 Income Statement COGS = $4,730 Last-In, First-Out Method (LIFO) Last-In, First-Out Method (LIFO) 5 @ $ 91 = 455 $ 7 @ $ 115 = 805 End. Inv. 1,260 $ 5 @ $ 91 = 455 $ 7 @ $ 115 = 805 End. Inv. $1,260 © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-36 Inventory Valuation Methods: A Summary Costs Allocated to: Valuation Method Cost of Goods Sold Inventory Comments Specific Actual cost of Actual cost of units Parallels physical flow identification the units sold remaining Logical method when units are unique May be misleading for identical units Average cost Number of units sold times the Number of units on hand times the Assigns all units the same average unit cost average unit cost average unit cost Current costs are averaged in with older costs First-in, First-out (FIFO) Cost of earliest purchases on Cost of most recently Cost of goods sold is based on older costs hand prior to the sale purchased units Inventory valued at current costs May overstate income during periods of rising prices; may increase income taxes due Last-in, First-out (LIFO) Cost of most recently Cost of earliest purchases Cost of goods sold shown at recent prices purchased units (assumed still in inventory) Inventory shown at old (and perhaps out of date) costs Most conservative method during periods of rising prices; often results in lower income taxes © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-37 Once a company has adopted a particular accounting method, it should follow that method consistently rather than switch methods from one year to the next. The Principle of Consistency The Principle of Consistency © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-38 Learning Objective Learning Objective LO2 To explain the need for taking a physical inventory. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-39 This inventory arrived just in time for us to use it in the manufacturing process. Just-In-Time (JIT) Inventory Systems Just-In-Time (JIT) Inventory Systems © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-40 The primary reason for taking a physical inventory is to adjust the perpetual inventory records for unrecorded shrinkage losses, such as theft, spoilage, or breakage. The primary reason for taking a physical inventory is to adjust the perpetual inventory records for unrecorded shrinkage losses, such as theft, spoilage, or breakage. Taking a Physical Inventory Taking a Physical Inventory © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-41 Learning Objective Learning Objective LO3 To record shrinkage losses and other year- end adjustments to inventory. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-42 Reduces the value of the inventory. Reduces the value of the inventory. Obsolescence Obsolescence Adjust inventory value to the lower of historical cost or current replacement cost (market). Adjust inventory value to the lower of historical cost or current replacement cost (market). Lower of Cost or Market (LCM) Lower of Cost or Market (LCM) LCM and Other Write-Downs of Inventory LCM and Other Write-Downs of Inventory © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-43 LCM and Other Write-Downs of Inventory LCM and Other Write-Downs of Inventory Cost Market Individual Items Inventory Category Total Inventory Bicycles: Boy's bicycles $ 4,200 $ 4,600 4,200 Girls bicycles 3,800 3,100 3,100 Junior bicycle 5,700 5,000 5,000 Total $ 13,700 $ 12,700 12,700 Bicycle accessories: Training wheels $ 485 $ 525 485 Headlamps 312 400 312 Protective helmets 700 600 600 Gloves 245 212 212 Kneepads 195 145 145 Total $ 1,937 $ 1,882 1,882 Total inventory $ 15,637 $ 14,582 14,054 $ 14,582 $ 14,582 $ LCM Applied on the Basis of . . . © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-44 Year End A sale should be recorded when title to the merchandise passes to the buyer. A sale should be recorded when title to the merchandise passes to the buyer. F.O.B. F.O.B. shipping shipping point point  title passes to buyer at the point of shipment. F.O.B. F.O.B. shipping shipping point point  title passes to buyer at the point of shipment. F.O.B. F.O.B. destination destination point point  title passes to buyer at the point of destination. F.O.B. F.O.B. destination destination point point  title passes to buyer at the point of destination. Goods In Transit Goods In Transit © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-45 Learning Objective Learning Objective LO4 In a periodic inventory system, you are to determine the cost of goods sold using (a) specific identification, (b) average cost, (c) FIFO, and (d) LIFO. © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-46 In a periodic inventory system, inventory entries are as follows. Note that an entry is not made to inventory. Note that an entry is not made to inventory. Periodic Inventory Systems Periodic Inventory Systems © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-47 In a periodic inventory system, inventory entries are as follows. Periodic Inventory Systems Periodic Inventory Systems © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-48 The inventory on hand and the cost of goods sold for the year are not determined until year-end. Periodic Inventory Systems Periodic Inventory Systems © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-49 Specific identification LIFO Average cost FIFO We use one of these inventory valuation methods in a periodic inventory system. Periodic Inventory Systems Periodic Inventory Systems © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-50 Computers, Inc. Mouse Pad Inventory Date Units $/Unit Total Beginning Inventory 1,000 5.25 $ 5,250.00 $ Purchases: Jan. 3 300 5.30 1,590.00 June 20 150 5.60 840.00 Sept. 15 200 5.80 1,160.00 Nov. 29 150 5.90 885.00 Goods Available for Sale 1,800 9,725.00 $ Ending Inventory 1,200 ? Cost of Goods Sold 600 ? Information for the Following Inventory Examples Information for the Following Inventory Examples © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-51 By reviewing actual purchase invoices, Computers, Inc. determines that the 1,200 mouse pads on hand at year-end have an actual total cost of $6,400. Determine the cost of goods sold for the year. Specific Identification Specific Identification © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-52 Computers, Inc. Mouse Pad Inventory Date Units $/Unit Total Beginning Inventory 1,000 5.25 $ 5,250.00 $ Purchases: Jan. 3 300 5.30 1,590.00 June 20 150 5.60 840.00 Sept. 15 200 5.80 1,160.00 Nov. 29 150 5.90 885.00 Goods Available for Sale 1,800 9,725.00 $ Ending Inventory 1,200 6,400.00 $ Cost of Goods Sold 600 3,325.00 $ Cost of Goods Sold $9,725 - $6,400 = $3,325 Cost of Goods Sold $9,725 - $6,400 = $3,325 Specific Identification Specific Identification © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-53 Total Cost of Total Cost of Goods Goods Available for Available for Sale Sale Total Number Total Number of Units of Units Available for Available for Sale Sale ÷ The average cost is calculated at year- end as follows: The average cost is calculated at year- end as follows: Average-Cost Method Average-Cost Method © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-54 Computers, Inc. Mouse Pad Inventory Date Units $/Unit Total Beginning Inventory 1,000 5.25 $ 5,250.00 $ Purchases: Jan. 3 300 5.30 1,590.00 June 20 150 5.60 840.00 Sept. 15 200 5.80 1,160.00 Nov. 29 150 5.90 885.00 Goods Available for Sale 1,800 9,725.00 $ Ending Inventory 1,200 ? Cost of Goods Sold 600 ? Avg. Cost $9,725  1,800 = $5.40278 Avg. Cost $9,725  1,800 = $5.40278 Average-Cost Method Average-Cost Method Computers, Inc. Mouse Pad Inventory Date Units $/Unit Total Beginning Inventory 1,000 5.25 $ 5,250.00 $ Purchases: Jan. 3 300 5.30 1,590.00 June 20 150 5.60 840.00 Sept. 15 200 5.80 1,160.00 Nov. 29 150 5.90 885.00 Goods Available for Sale 1,800 9,725.00 $ Ending Inventory 1,200 6,483.00 $ Cost of Goods Sold 600 3,242.00 $ Ending Inventory Avg. Cost $5.40278 1,200 = $6,483 Ending Inventory Avg. Cost $5.40278 1,200 = $6,483 Cost of Goods Sold Avg. Cost $5.40278 600 = $3,242 Cost of Goods Sold Avg. Cost $5.40278 600 = $3,242 © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-55 Costs of Goods Sold Costs of Goods Sold Ending Inventory Ending Inventory Oldest Costs Oldest Costs Recent Costs Recent Costs First-In, First-Out Method (FIFO) First-In, First-Out Method (FIFO) © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-56 Remember: Start with the 11/29 purchase and then add other purchases until you reach the number of units in ending inventory. Remember: Start with the 11/29 purchase and then add other purchases until you reach the number of units in ending inventory. First-In, First-Out Method (FIFO) First-In, First-Out Method (FIFO) Computers, Inc. Mouse Pad Inventory Date Units $/Unit Total Beginning Inventory 1,000 5.25 $ 5,250.00 $ Purchases: Jan. 3 300 5.30 1,590.00 June 20 150 5.60 840.00 Sept. 15 200 5.80 1,160.00 Nov. 29 150 5.90 885.00 Goods Available for Sale 1,800 9,725.00 $ Ending Inventory 1,200 ? Cost of Goods Sold 600 ? © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-57 Date Beg. Inv. Purchases End. Inv. Cost of Goods Sold Nov. 29 150@$5.90 150@$5.90 Units 150 Now, let’s complete the table. Now, let’s complete the table. First-In, First-Out Method (FIFO) First-In, First-Out Method (FIFO) Date Beg. Inv. Purchases End. Inv. Cost of Goods Sold 1,000@$5.25 600@$5.25 400@$5.25 Jan. 3 300@$5.30 300@$5.30 June 20 150@$5.60 150@$5.60 Sept. 15 200@$5.80 200@$5.80 Nov. 29 150@$5.90 150@$5.90 Units 1,200 600 Now, we have allocated the cost to all 1,200 units in ending inventory. Date Beg. Inv. Purchases End. Inv. Cost of Goods Sold 1,000@$5.25 600@$5.25 400@$5.25 Jan. 3 300@$5.30 300@$5.30 June 20 150@$5.60 150@$5.60 Sept. 15 200@$5.80 200@$5.80 Nov. 29 150@$5.90 150@$5.90 Units 1,200 600 Costs $6,575 $3,150 Cost of Goods Available for Sale $9,725 © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-58 Completing the table summarizes the computations just made. Completing the table summarizes the computations just made. First-In, First-Out Method (FIFO) First-In, First-Out Method (FIFO) Computers, Inc. Mouse Pad Inventory Date Units $/Unit Total Beginning Inventory 1,000 5.25 $ 5,250.00 $ Purchases: Jan. 3 300 5.30 1,590.00 June 20 150 5.60 840.00 Sept. 15 200 5.80 1,160.00 Nov. 29 150 5.90 885.00 Goods Available for Sale 1,800 9,725.00 $ Ending Inventory 1,200 6,575.00 $ Cost of Goods Sold 600 3,150.00 $ © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-59 Costs of Goods Sold Costs of Goods Sold Ending Inventory Ending Inventory Recent Costs Recent Costs Oldest Costs Oldest Costs Last-In, First-Out Method (LIFO) Last-In, First-Out Method (LIFO) © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin 8-60 Remember: Start with beginning inventory and then add other purchases until you reach the number of units in ending inventory. Remember: Start with beginning inventory and then add other purchases until you reach the number of units in ending inventory. Last-In, First-Out Method (LIFO) Last-In, First-Out Method (LIFO) Computers, Inc. Mouse Pad Inventory Date Units $/Unit Total Beginning Inventory 1,000 5.25 $ 5,250.00 $ Purchases: Jan. 3 300 5.30 1,590.00 June 20 150 5.60 840.00 Sept. 15 200 5.80 1,160.00 Nov. 29 150 5.90 885.00 Goods Available for Sale 1,800 9,725.00 $ Ending Inventory 1,200 ? Cost of Goods Sold 600 ?