Inventory Costing Demonstration

Inventory

 

M&M Store

Purchases:1)   8 Brown/Red ($2 each) 2)   7 Blue/Green ($3 each)3)   5 Yellow/Orange ($4 each)

           20 Total M&Ms

Sold:  12 ($5 Sales Price)(Assume 4 of each 

group)

Outside

M&M Store Outside

Goods Available for Sale Assignment of Cost to Goods Sold and Ending Inventory

Total Specific Identification Method

Unit # of Cost CGS EI

Cost Units Available # $ # $

BI        

P1              

P2              

P3              

GAS       Totals        

  

  

      

      

FIFO Cost Flow Assumption

Goods Available for Sale Assignment of Cost to Goods Sold and Ending Inventory

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

Unit # of Cost CGS EI

Cost Units Available # $ # $

BI        

P1              

P2              

P3              

GAS       Totals        

  

  

      

      

LIFO Cost Flow Assumption

Goods Available for Sale Assignment of Cost to Goods Sold and Ending Inventory

Total Last-In, First-Out (LIFO) Method

Unit # of Cost CGS EI

Cost Units Available # $ # $

BI        

P1              

P2              

P3              

GAS       Totals        

  

  

      

      

Goods Available for Sale Assignment of Cost to Goods Sold and Ending Inventory

Total Weighted Average Method

Unit # of Cost CGS EI

Cost Units Available # $ # $

BI $0 0 $0        

P1          

P2          

P3              

GAS       Totals        

  $ 2

$ 3

  $ 4

      8

      7

      5

$16

$21

$20

20 $57 12  8

So what?

Specific Weighted

Income Statement Identification FIFO LIFO Average

Sales (12 units @ $_____) $ $ $ $

Cost of Goods Sold        

Gross Profit

Operating Expenses  

Income before Taxes

Income Tax Expense (assume 30%)        

Net Income $ $ $ $

   

 

         

 

Her

e’s

Wh

at

There’s more…

Specific Weighted

Balance Sheet Identification FIFO LIFO Average

Current Assets:

Inventory (Ending) $ $ $ $

Stockholders' Equity:

Retained Earnings $ $ $ $

Specific Weighted

Statement of Cash Flows Identification FIFO LIFO Average

Cash paid for income taxes $ $ $ $

(Assume all income taxes were paid)

And

finall

y…

The reality is that in all cases 20 pieces of candy were purchased and 12 were sold.  The different financial results are merely cosmetic.

Conclusion: