INVENTORY – Chapt 6. p.277-284

1. BALANCE SHEET Biggest Asset  see example How can an inventory item be both raw materials and finished goods at the same time? INCOME STATEMENT Biggest Expense Manufacturer inventory INVENTORY – Chapt 6. p.277-284 Chapter 6 - Inventory Valuation

2. The Audiophile sells high end stereo equipment. Windsor Acoustics recently introduced the Carnegie 440, a state of the art speaker system. During the current year the Audiophile purchase 9 of these speaker systems at the following dates and acquisition costs: Chapter 6 - Inventory Valuation

3. The problem is that acquisition costs change so how is inventory evaluated? Chapter 6 - Inventory Valuation

4. Average cost method assumes that goods available for sale are homogeneous Chapter 6 - Inventory Valuation

5. On November 21, The Audiophile sold 4 of these speaker systems to the Hamilton Symphony for $5000 per unit. At December 31, the other 5 sets remained in inventory.Compute and journalize the COGS and the ending inventory value based on the average inventory costs: Value of remaining inventory is: Chapter 6 - Inventory Valuation

6. FIFO method assumes earliest goods purchased are the first to be sold Chapter 6 - Inventory Valuation

7. On November 21, The Audiophile sold 4 of these speaker systems to the Hamilton Symphony for $5000 per unit. At December 31, the other 5 sets remained in inventory.Compute and journalize the COGS and the ending inventory value based on the “First In –First Out” (FIFO) inventory cost: Value of remaining inventory is: Chapter 6 - Inventory Valuation

8. Average vs. FIFO Chapter 6 - Inventory Valuation

9. LIFO method assumes latest goods purchased are the first to be sold Chapter 6 - Inventory Valuation

10. On November 21, The Audiophile sold 4 of these speaker systems to the Hamilton Symphony for $5000 per unit. At December 31, the other 5 sets remained in inventory.Compute the COGS and the ending inventory value based on the “Last In – Last Out” (LIFO) inventory costs: Value of remaining inventory is: Chapter 6 - Inventory Valuation

11. USING INVENTORY COST FLOW METHODS CONSISTENTLY • A company needs to use its chosen cost flow method consistently from one accounting period to another. • Such consistent application enhances the comparability of financial statements over successive time periods. • When a company adopts a different cost flow method, the change and its effects on net income should be disclosed in the financial statements. Chapter 6 - Inventory Valuation