[Ail Bane]

I have a question about a FIFO Perpetual Inventory.

A company's transactions of cases for March. I have to make an Inventory Account Card.
I don't get it; how much would be in the final inventory? For example if on March 7 he sold 15 of the 20 that he had so there would be 5 left right? And at what price $40 or $98?


Mar 1 Beginning Inventory 20 @ $40
Mar 7 Sale 15 @ $98
Mar 12 Purchase 18 @ $42
Mar 20 Sale 12 @ $99
Mar 22 Sale 3 @ $99
Mar 30 Purchase 10 @ $45

[CaptainForest]

Here is some help to get your started:


Let's say you buy 100 units @ $2 per unit today. And in 4 days you buy another identical 100 units but @ $3 per unit. Then you go and sell 100 units. Which of the 200 total units did you sell? The ones @ $2 or $3 or a mixture?

FIFO
First in First out. That means the first ones you buy are deemed to be the first ones you sell.

So, let's take at an example.

BEGINNING INVENTORY:
Units: 100 Units cost: $8.00
Purchases: Mar. 1st 200 $7.00
July 15 500 $6.00
SALES: Feb. 5 200
June 15 200
Sept. 20 200

Therefore, how many units do you have left at the end of the year?

Beginning of 100 + Purchases of 200 and 500 – Sales of 200 and 200 and 200 = 200 units left at the end of the year.

Therefore, since the OLD stuff went first, the 200 units are deemed to be the NEW stuff under the FIFO method.

So our last purchase was for 500 units @ $6 so therefore the inventory we have left is:

FIFO inventory = 200 units x $6 = $1,200

And what would the cost of goods be?

Well, if we sold 600 units, it is the FIRST 600 units we have on the books.

So we have 100 units @ $8 and then another 200 units @ $7 and then another 500 units @ $6.

So:
100 units @ $8 = 800
200 units @ $7 = 1,400

Now only 300 of the 500 since we only need a total of 600 units…
300 units @ $6 = 1,800

Total Cost of Goods = 800 + 1,400 + 1,800 = $4,000



Now let's move on to the LIFO method.

The LIFO method is virtually identical to the FIFO method except instead of First in First Out, it is Last in First Out.

Therefore, it is assumed that the last products you buy will be sold first.

Inventory is still 200 units left but this time it is:
100 units @ $8 = 800
100 of the 200 units @ $7 = 700

LIFO Inventory = 800 + 700 = $1,500

Cost of Goods:
Still 600 units, but this time at:
500 units @ $6 = 3,000
And 100 of 200 units @ $7 = 700

LIFO Cost of Goods = 3,000 + 700 = $3,700



Now let's move on to the average method.

Basically, this method says, lets take an average of the inventory and deal with it that way.

So the average value of all the inventory is:
100 units @ $8 = $800
200 units @ $7 = $1,400
500 units @ $6 = $3,000

Total inventory = $800 + $1,400 + $3,000 = $5,200 for 800 units.

Therefore, each unit is $5,200 / 800 = $6.50

Average Method Inventory:

We still only have the 200 units left, that does not change.

This time they are valued at 200 x 6.50 = $1,300

Average Method Cost of Goods:
We still have 600 units sold and since we are deeming all units to cost $6.50, then the calculation is 600 x 6.50 = $3,900

[Ail Bane]

I posted a link to it, it excel spreadsheet. Is this right?

http://img187.imageshack.us/img187/9992/untitled2gg4.png

[CaptainForest]

Mar 1 Beginning Inventory 20 @ $40
Inventory 20 x 40 = $800

Mar 7 Sale 15 @ $98
Inventory (20-15) x 40 = $200

Mar 12 Purchase 18 @ $42
Inventory = 5 x 40 = $200 + 18 x 42 = $756

Mar 20 Sale 12 @ $99
Inventory = (5-5) x 40 = $0+ (18-7) x 42 = $462

Mar 22 Sale 3 @ $99
(11-3) x 42 = $336

Mar 30 Purchase 10 @ $45
8 x 42 = $336 + 10x45 = $450

Total Inventory at March 30 = 336 + 450 = $786


Remember, FIFO means that you are deemed to sell the inventory you received FIRST.

Your graphic is OK up until the sale on March 20. The 5 units at 40 should go down to 0 before you touch the 18. And how did it go up to 7?

[Ail Bane]

Thanks! I can't believe I couldn't add/subtract correctly. I see where I screwed up.
This should be the correct journal entry.

March 12
DR. Purchases 956
CR. AP 956

March 30
DR.Purchases 786
CR. AP 786



I had one more question. Me and some other students were debating on this, some came up with answers in the 2000's while mine was in the 3000's.

On Sept 2, M.Company purchases 15 tables @ $250 each on account, terms 1/10, n/30: FOB shipping point. The vendor gave a 10% trade discount and prepaid delivery charges of $50. On Sept 6, M.Co returned 2 tables which had been mishandled. What amount must the M.Co pay in order to clear the account on Sept 12?

I got $3,425, is that right?

[CaptainForest]

I had one more question. Me and some other students were debating on this, some came up with answers in the 2000's while mine was in the 3000's.

On Sept 2, M.Company purchases 15 tables @ $250 each on account, terms 1/10, n/30: FOB shipping point. The vendor gave a 10% trade discount and prepaid delivery charges of $50. On Sept 6, M.Co returned 2 tables which had been mishandled. What amount must the M.Co pay in order to clear the account on Sept 12?

I got $3,425, is that right?

Ok.

On Sept 2 you bought 15 x 250 = $3,750.

So you owe 3,750 as of Sept 2.

The vendor gave a discount and paid for shipping to arrive at a cost to you at 250 per tablet. So that is irrelevant since it is included in the price you paid.

On Sept 6 you returned 2 tablets, so 2 x 250 = $500

As of Sept 12, you owe 3,750 – 500 = $3,250

But you also get a 1% discount which is 0.01 x 3,250 = 32.50

So if you pay it by Sept 12, you only have to pay 3,250 – 32.50 = $3,217.50

[Ail Bane]

I appreciate the help Captain forest, but how come you didn't take the discount off the original $3,750? I asked people who had the same prof as I do now, and they told me that the correct answer was $2,845.75. I can't figure out how to get that low. Do you see a way?

[CaptainForest]

15 x 250 = 3,750
Less 10% discount of 375
Total 3,375
Returned 2 x 250 = 500 less 10% = 450
Total 2,925
Less 1% discount
29.25
Total 2,895.75
Less 50
Total 2,845.75

[Ail Bane]

THANKS, YOU'RE AWESOME!!

Its just hard for me to figure out when and at what price to take the discount.