九
Investment
Tools: Financial Statement Analysis: Assets
1.A: Analysis of Inventories
a: Compute ending inventory balances and cost of goods sold using the LIFO,
FIFO, and average cost methods to account for product inventory.
Example: Given the following inventory data:
January 1 (beginning inventory):
2 units @ $2 per unit = $ 4
January 7 purchase:
3 units @ $3 per unit = $9
January 19 purchase:
5 units @ $5 per unit = $25
Cost of goods available (BI + P):
10 units = $38
Units sold during January:
7 units
FIFO cost of goods sold (value the 7 units sold at unit cost of last units purchased). Start at
the top and work down:
From beginning inventory:
2 units @ $2 per unit = $4
From first purchase:
3 units @ $3 per unit = $ 9
From second purchase:
2 units @ $5 per unit = $10
FIFO cost of goods sold:
7 units = $23
Ending inventory:
3 units @ $5 = $15
LIFO cost of goods sold (value the 7 units sold at unit cost of first units purchased). Start at
the bottom and work up:
From second purchase:
5 units @ $5 per unit = $25
From first purchase:
2 units @ $3 per unit = $6
LIFO cost of goods sold:
7 units = $31
Ending inventory:
2 @ $2 + 1 @ $3 = $7
Average cost of goods sold (value the 7 units sold at the average unit cost of goods
available).
Average unit cost = $38 / 10 = $3.80 per unit
Weighted average cost of goods sold = 7 @ $3.80 = $26.60
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