6.2 Inventory Cost Determination Formulas

Question 1

What are the methods to determine cost of goods sold

Answer 1

1) Specific Identifications
2) FIFO
3) Average cost

Question 2

Specific Identification

Answer 2

when all goods are specific and identifiable, with different costs/items/barcodes

Question 3

if you have items A (woth 75) B (250) C(910)

and you sell A and B for 2000 each

whats your inventory and whats your cogs

Answer 3

Inventory: 910

cogs: 75+250

Question 4

do you use the sale price or the cost of th good sold amount to reduce the inventory acct when selling goods?

Answer 4

always use the cost of the goods sold!!!! because sale price is profit genrating

Question 5

What is the speciific identification cost formula

Answer 5

Cost of goods sold= the goods you sold
Ending inventory= goods not sol

Question 6

when to use speciifc identification formula

Answer 6

Companies use this formula primarily in businesses with a relatively small number of costly items that are easily distinguishable

Question 7

can u use specific identification in perpetual or periodic?

Answer 7

both

Question 8

FIFO meaning

Answer 8

first in-first out

Question 9

what is the basic assumption of fifo

Answer 9

the earilest goods purchased are the first to be sold

Question 10

how is cogs determined in fifo?

Answer 10

use the cost of the earliest goods purchased

Question 11

how is the cost of ending inventory determined in fifo

Answer 11

the costs of the most recently purchased items

Question 12

does FIFO mean the company HAS to sell the oldest inventory firsT?

Answer 12

no!!! since you cant speicifically identify them we assume

Question 13

Because it is normally good business practice to sell first those units that have been in inventory the longest (the oldest units), using FIFO often corresponds with the actual flow of inventory.

Answer 13

Because it is normally good business practice to sell first those units that have been in inventory the longest (the oldest units), using FIFO often corresponds with the actual flow of inventory.

Question 14

how to read those purchases/ cogs/ balance charts?

Answer 14

basically things get used up! the first purchase units needs to be sold first and then the second

Question 15

how to check costs of goods solvd and ending inventory values

Answer 15

COGS+ Ending Inventory=

COGavailable for sale (beginning inventory+purchases)

Question 16

what is the main check to do in FIFO:

Answer 16

Beginning Inventory + Cost of Goods Purchased = Cost of Goods Available for Sale

Cost of Goods Sold + Ending Inventory = Cost of Goods Available for Sale

Beginning Inventory + Cost of Goods Purchased = Cost of Goods Sold + Ending Inventory

Question 17

WHAT IS the average cost formula

Answer 17

cog available for sale/ units available for sale= weight avg unit cost

Question 18

why do we need the average cost formula

Answer 18

-> because you cant really determine a specific physical flow of inventory when all the goods you are selling are the same/interchangeable

-> when u fill ur car, the old gas + new gas mix and mingle

Question 19

what does avg cost formula do?

Answer 19

find the weighted average unit cost!

Question 20

Calculate the weighted average unit cost after each purchase of goods under a perpetual inventory system.

Answer 20

Calculate the weighted average unit cost after each purchase of goods under a perpetual inventory system

Question 21

is the average cost a moving average!!

Answer 21

yes! you calculate with each new purchase

Question 22

should you use rounded or unrounded values in avg cost calculationS?

Answer 22

always unrounded !!!! keep in calculator

Question 23

Although FIFO assumes that the oldest inventory is sold first, this does not necessarily mean that the company actually sells the oldest units first. It just means that the first costs that the company records in cost of goods sold are the costs of the oldest units.

Answer 23

!!