Can someone explain this process to me as if I am two. I am not getting this and I don't know why.


Dec 7 310 units @ 3.00 unit cost
Dec 14 20 units @ 3.20
Dec 21 15 units @ 14.00


Trader sells 15 units for 25 dollars each on Dec 15. Eight of the sold units are from ythe Dec 7 purchase and seven are from the Dec 14 purchase. Trader uses a perpetual inventory system. Determine the costs assigned to the Dec 31 ending inventory when costs are assigned based on FIFO, LIFO, weighted average, and specific identification.

ivory5130

Does anyone have any suggestions as to where I can go online to get a better understanding?

CaptainForest

Take a look at this post for a good example on FIFO, LIFO and Weighted Average: http://www.askmehelpdesk.com/account...elp-48985.html

CaptainForest

Perpetual Inventory = you calculate current inventory after each sale.

FIFO.
The sale occurs on Dec. 15. You sold 15 units. So we assume you sold the oldest first (all 10 from Dec. 7) and then 5 from Dec. 14

So you remove THOSE items from inventory

LIFO
We assume the last inventory is what you sold. Therefore we assume you sold all 15 items from those that you bought on Dec. 14

Weighted Average
Dec. 7 = 10 units x 6 = $60
Dec. 14 = 20 units x 12 = $240
Total Inventory = 30 units = $60+240 = $300. $300/30 = $10/unit
We sold 15 untis on Dec. 15, so we assume we sold those 15 items at a cost to us of $10 each, so you subtract 15 x 10 = $150 from inventory.

Specific Identification
You expense exactly what you sold.
So of the 15 items you sold…
8 from Dec. 7 Purchase…so expense 8 units at $6 each
And 7 are from Dec. 14 Purchase...so expense 7 units at $12 each

ivory5130

Okay, a couple of questions, this is why I am confused.
1. I came up with fifteen units in inventory after I had deducted the fifteen units- all of dec 7 and 5 from dec. 14 , which left 15. I sold fifteen on Dec. 15 which cancels each other out but then I purchased on Dec 21 another 15 units. So what am I not getting with this?

2. LIFO- what about the Dec 21 purchase of 15 more units.

3. the weighted average is the only one she gave us an answer for but I can't get mine to equal to the same. The answer is 360.00 for the weighted avg.

4. specific identification- I understand the way you showed me in your explaination, however the question started out saying that 15 units were sold for 25.00 each on Dec. 15. Do I ignore the 25.00 dollar each part of the equation?

Thank you so much for assisting me.

CaptainForest

Question: I have been working under the assumption that you bought 10 units on Dec. 7 as that is what I thought you had typed. I now see you wrote down you bought 310 units. Did you mean 30 units or 10 units? I have been working under the assumption of 10.

1)
After the Dec. 7 Purchase (where you bought 10 units), you had a total of 10 units in inventory

After the Dec. 14 Purchase (where you bought 20 units), you had a total of 30 (10+20) units in inventory

After the Dec. 15 Sale (where you sold 15 units), you had a total of 15 (30-15) units in inventory.

After the Dec. 21 Purchase (where you bought 15 units), you had a total of 30 (15+15) units in inventory


2)
The reason we are ignoring the Dec. 21 purchase in relation to the Dec. 15 Sale is because as at Dec. 15, the Dec. 21 purchase had not occurred.

So on Dec. 15, when we sold the 15 units, our inventory looked like this:
Dec. 7 Purchase = 10 units
Dec. 14 Purchase = 20 units.

Therefore, since we make the assumption we sold the most recent first, we assume we sold 15 of the 20 units purchases on Dec. 14

Now, on Dec. 21 we purchase 15 more units and add that to the list.

So if we were to make a sale on Dec. 22 for 10 units, our inventory would look like this:
Dec. 7 Purchase = 10 units
Dec. 14 Purchase = 5 units (was 20-15)
Dec. 21 Purchase = 15 units

Therefore of the 10 units we sold under LIFO, we assume they came from the Dec. 21 Purchase.


3)
I was about to answer this but I see now on your first post, you have the purchase price per unit on Dec. 14 at $3.20 per unit? I thought it was $12 per unit?


4)
When calculating inventory costs, it is irrelevant what you sold the items for.

The Journal Entries that you would make would be the following

Dr. Cash (or AR) 375
Cr. Sales 375

Calculation:
25 x 15 = 375


Dr. COGS 132
Cr. Inventory 132

Calculation
Dec. 7 Purchase = 8 units x $6 each = 48
Dec. 14 Purchase = 7 units x $12 each = 84
Total Cost = 48 + 84 = 132

The Income Statement after this sale of 15 units on Dec. 15 would look like this:
Sales 375
Less: COGS 132
Net Income 243

ivory5130

3. Number three is 12.00 per unit and the weighted average is supposed to be 360.00. How do they come up with that? I apologize for the mistype. I guess staying up till three in the morning trying to figure out homework is not a good idea, hugh.

ivory5130

Let me retype the problem because I have confused myself and can see if I have confused you as well.

dec. 7 10 units @ 6.oo
dec. 14 20 units @ 12.00 cost
dec. 21 15 units @ 14.00 cost

CaptainForest

dec. 7 10 units @ 6.oo = $60
dec. 14 20 units @ 12.00 cost = $240

Total Inventory = 240 + 60 = $300 / 30 units = $10 per unit

Dec. 15, sold 15 units

dec. 21 15 units @ 14.00 cost = $210


Inventory left:
After Dec. 15 Sale = 15 units at $10 each = $150
Plus Dec. 21 Purcahse of $210

Total Inventory left = 210 + 150 = $360

I was calculating for you the COGS. Your question asked for the Ending Inventory value. So therefore, that makes its $360.

ivory5130

OMG-- I get it now. You are a life saver. I am going to do another problem and submit it and you tell me if I did it right. Going to work right now will sign back in around 8p.m. Hope you are signed on. Thanks again.