Inventory and COGS

Question 1

Periodic Inventory System

Answer 1

• A periodic inventory system is updated at given intervals e.g. monthly
• Disadvantage here is that the records are not always up do date

Question 2

Perpetual Inventory System

Answer 2

• A perpetual inventory system is one where inventory records are updated after every purchase

Question 3

Weighted Average Cost Method:

Answer 3

An inventory costing method that assigns the same unit cost to all units available for sale during the period

Weighted Average Cost =
(Cost of Goods available for sale)/(Units available for sale)

Ending Inventory = Weighted Average cost * Number of units in ending inventory

COGS = Beginning $Inventory + Purchase $amount during the period − Ending $ Inventory (Average*unit)
or Weighted average cost * goods sold

Question 4

First-In, First-Out Method (FIFO):

Answer 4

An inventory cost method that assigns the most recent costs to ending inventory

a. Cost of Goods Sold: The first units purchased are the first ones sold

b. Ending inventory: Assigns the most recent costs to ending inventory
i. Line up purchases (units and price)
ii. From oldest in stock. add the costs until you hit the desired number of goods
c. IASB (IFRS) are more in favor of FIFO

Question 5

3. Last-In, First-Out Method (LIFO):

Answer 5

An inventory cost method that assigns the most recent costs to cost of goods sold

a. allows companies with rising inventory costs to report lower income- and lower taxes
i. Line up purchases (units and price)
ii. From newest in stock add the costs until you hit the desired number of goods
b. GAAP in the USA allows