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1 Chapter 6 (FIFO, LIFO, Average)

1 Chapter 6 (FIFO, LIFO, Average)1 Chapter 6 (FIFO, LIFO, Average)1 Ch...

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Financial Accounting (ACC202)

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Academic year: 2022/2023

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CHAPTER 6: Inventory (FIFO, LIFO, Average)

FIFO: First IN – First OUT

LIFO: Last in – First out

Ahmad, owns 3 cars, during the current month Ahmad sold one

car @ 100,000. While the purchased cars have the following

information:

Purchase date Car Cost

1/1/2020 A 70,

20/1/2020 B 80,

25/1/2020 C 45,

1- How much is the profit of Ahmad from car selling?

Metho

d

FIFO LIFO Average (total

cost / total

quantity)

Profit 100,000 – 70,

= 30,

100 – 45 = 55,000 (70 + 80 + 45) =

195,000 / 3 cars =

65,

Profit = 100 -65 =

35,

2- How much is the cost of cars still on hand of Ahmad at the

end of the month?

Method FIFO LIFO Average (total cost

– cost of car sold)

Ending

inventory

80+45 =

125,

70+80= 150,000 2*65 = 130,

Example 1:

Instruction : use the three inventory methods (FIFO, LIFO,

Average)

1- Compute the cost of goods sold (COGS). (100 – 45 = 55 Units)

2- Compute the ending inventory value (45 units).

1- FIFO: First In – First Out

Cost of goods sold (COGS)

(Need # of units sold) = 55 units

Ending inventory

(Need # of units on hand) = 45 units

Date #Unit s

Cost per unit

Total cost Date #Units Cost per unit

Total cost

1 – Jan

15 – April

24 Aug

Total COGS

10

20

25

100

110

120 1,

2,

3,

6,

27 – Nov

24 – Aug

Total EI

40

5

130

120 5,

600 5,

2- LIFO: Last In – First Out

Cost of goods sold (COGS)

(Need # of units sold) = 55 units

Ending inventory

(Need # of units on hand) = 45 units

Date #Unit Cost per Total cost Date #Units Cost per Total cost

Total 775 Books 14,543.

On Dec 31, ADU looks through the store sales and realizes that ADU’s Books has sold 450 books to-date. Compute the cost of goods sold and ending inventory , using (FIFO, LIFO and Average methods).

1- Average

Cost of goods sold (COGS)

(Need # of units sold) = 450 units

Ending inventory

(Need # of units on hand) = 325 units

= (total cost / total quantity) * Units sold

14,543 / 775 books = 18 * 450 =8444.

= (total cost / total quantity) * Units on hand

14,543 / 775 books = 18 * 325 books = 6098.

2 - LIFO

Cost of goods sold (COGS)

(Need # of units sold) = 450 units

Ending inventory

(Need # of units on hand) = 775 –

450 = 325 Books

Date Units Price per unit Total cost Dec 4 150 books $18 per 2, Dec 7 150 books $19 per 2,887. Dec 15 150 books $20 per 3,

Total 450 Books $8,662.

Date Units Price per unit Total cost Nov 7 100 books $18 per 1, Nov 21 100 books $18 per 1, Nov 28 125 books $18 per 2,281.

Total 325 Books $5,881.

3 - FIFO

Cost of goods sold (COGS)

(Need # of units sold) = 450 units

Ending inventory

(Need # of units on hand) = 775 –

450 = 325 Books

Date Units Price per unit Total cost Nov 7 100 books $18 per 1, Nov 21 100 books $18 per 1, Nov 28 125 books $18 per 2,281. Dec 4 125 books $18 per 2,312.

Total 450 Books $8,193.

Date Units Price per unit Total cost Dec 4 25 books $18 per 462. Dec 7 150 books $19 per 2,887. Dec 15 150 books $20 per 3,

Total 325 Books 6,

The data we have been working with from the videos in the previous section is:

Units Cost Amount Jan 1 Beg Inventory 300 10 $3, Jan 2 Purchase 200 15 $3, Jan 11 Purchase 120 17 $2, Jan 18 Purchase 300 20 $6, Total 920 $14,

The inventory on hand at the end of period is 450 units. Find the COGS and ending inventory vale by using (FIFO, LIFO and Average methods):

Weighted average methods:

Step 1:

(Total value of purchased units) / (Total of units) = 14,040 / 920 = $15 per unit

Step2:

COGS= (920 – 450) = 470 Units = 470 * 15 = $ 7,172.

Ending inventory: (450 units) = 450 * 15 = 6867.

LIFO:

COGS= (920 – 450) = 470 Units

Units Cost Amount 300 20 6000 120 17 2040

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