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Cost

The document discusses inventory pricing methods for merchandising and manufacturing companies. It covers classifying inventory, determining inventory quantities through physical counts and perpetual vs periodic systems, and costing inventory using FIFO, LIFO, and average costing methods.

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Ali Khaled
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25 views

Cost

The document discusses inventory pricing methods for merchandising and manufacturing companies. It covers classifying inventory, determining inventory quantities through physical counts and perpetual vs periodic systems, and costing inventory using FIFO, LIFO, and average costing methods.

Uploaded by

Ali Khaled
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Cost Accounting

Lecture (9)
The Inventory Pricing
Methods
Dr. Raghda Hassan
(1)
Classifying Inventory

Merchandising Manufacturing
Company Company

One Classification: Three Classifications:


Raw Materials
Merchandise Inventory
Work in Process
Finished Goods

Regardless of the classification, companies report all


inventories under Current Assets on the balance sheet

(2)
Determining Inventory Quantities

Physical Inventory taken for two reasons:

Perpetual System

1. Check accuracy of inventory records.

2. Determine amount of inventory lost (wasted


raw materials, shoplifting, or employee
theft).
(3)
Determining Inventory Quantities

Physical Inventory taken for two reasons:

Periodic System

1. Determine the inventory on hand.

2. Determine the cost of goods sold for the


period.

(4)
Determining Inventory Quantities

Taking a Physical Inventory:

Involves counting, weighing, or measuring


each kind of inventory on hand.

Taken,

when the business is closed or when


business is slow.

at end of the accounting period.


(5)
Inventory Costing

Unit costs can be applied to quantities on


hand using the following costing methods:

First-in, first-out (FIFO)

Last-in, first-out (LIFO) Cost Flow


Assumptions

Average-cost

(6)
Inventory Costing – Cost Flow Assumptions

Cost Flow Assumption


does not need to equal

Physical Movement of
Goods

Use of cost flow methods in


major U.S. companies in
this figure:

(7)
Inventory Costing – Cost Flow Assumptions

“First-In-First-Out (FIFO)”

Earliest goods purchased are first to be


sold.

Often parallels actual physical flow of


merchandise.

Generally good business practice to sell


oldest units first.
(8)
Inventory Costing – Cost Flow Assumptions

“Last-In-First-Out (LIFO)”

Latest goods purchased are first to be


sold.

Seldom coincides with actual physical flow


of merchandise.

Exceptions include goods stored in piles,


such as coal or hay.
(9)
Inventory Costing – Cost Flow Assumptions

“Average-Cost”
Allocates cost of goods available for sale on
the basis of weighted average unit cost
incurred.

Assumes goods are similar in nature.

Applies weighted average unit cost to the


units on hand to determine cost of the ending
inventory.
(10)

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