Inventory Flashcards
Periodic Inventory - Weighted Average
Cost of Goods Available for Sale divided by # of units available for sale
Note about moving average inventory
Just use the total number of units and the total unit costs
Perpetual vs Periodic LIFO
- Periodic looks at everything like the sale happened at the end
- Perpetual looks at it ass it happens
FIFO in a period of rising prices
- Since the first things going out are the cheapest you are lowering you COGS, and at the end of the year have a greater ending inventory.
- If you switch to LIFO your COGS goes up decreasing Net Income and you end up with a lower ending inventory
Dollar Value Conversion Index
Ending inventory in current year dollars divided by Ending inventory in base year dollars
Dollar Value Inventory Steps
- ) Multiply ending inventory by (1 divided by index)
- ) Find the difference between that number at beginning inventory
- ) Multiply the difference by the price index
- ) Add that to beginning inventory
Inventory Margins
Sales - Cost = Margin
100 - 80 = 20
Margin on Sales: 20/100 = 20%
Margin on Cost: 20/80 = 25%
Note about group liquidation
Use the replacement cost to calculate
Note about inventory margins
If margin is 40% then multiply Sales by 60% to get COGS
Retail Inventory Method - Cost to Retail Ratio
Goods available at cost divided by goods available at retail (includes markups)
Retail Inventory Method - Ending Inventory
Net retail multiplied by Cost to retail ratio
Retail Inventory Method - Cost of Goods Sold
- Find net retail
- Multiply by cost to retail ratio
- Subtract that from total cost
When is lower of Cost or Net Realizable Value Appropriate
When FIFO or Weighted Average is used
When is lower of Cost or Market Appropriate
When LIFO is used
IFRS net realizable value or market
IFRS uses lower of cost or net realizable value
