After studying this chapter you will be able to: list the key assumptions of each inventory method, calculate the cost of ending inventory and cost of goods sold for each inventory method, calculate the cost ratio and ending inventory at cost for the retail method, calculate the estimated inventory using the gross profit method, explain and calculate inventory turnover, explain overhead; allocate overhead according to floor space and sales. | INVENTORY AND OVERHEAD Chapter Eighteen Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 1 List the key assumptions of each inventory method. Calculate the cost of ending inventory and cost of goods sold for each inventory method. LU 18-1: Assigning Costs to Ending Inventory - Specific Identification; Weighted Average; FIFO; LIFO Learning unit objectives LU 18-2: Retail Method; Gross Profit Method; Inventory Turnover; Distribution of Overhead Calculate the cost ratio and ending inventory at cost for the retail method. Calculate the estimated inventory using the gross profit method. Explain and calculate inventory turnover. Explain overhead; allocate overhead according to floor space and sales. 2 18- Perpetual Inventory System – Keeps a running account of inventory by updating with each transaction. Inventory Systems Periodic Inventory System – Relies on a physical count of inventory done periodically. 3 Number of Cost Total Units Purchased per | INVENTORY AND OVERHEAD Chapter Eighteen Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 1 List the key assumptions of each inventory method. Calculate the cost of ending inventory and cost of goods sold for each inventory method. LU 18-1: Assigning Costs to Ending Inventory - Specific Identification; Weighted Average; FIFO; LIFO Learning unit objectives LU 18-2: Retail Method; Gross Profit Method; Inventory Turnover; Distribution of Overhead Calculate the cost ratio and ending inventory at cost for the retail method. Calculate the estimated inventory using the gross profit method. Explain and calculate inventory turnover. Explain overhead; allocate overhead according to floor space and sales. 2 18- Perpetual Inventory System – Keeps a running account of inventory by updating with each transaction. Inventory Systems Periodic Inventory System – Relies on a physical count of inventory done periodically. 3 Number of Cost Total Units Purchased per Unit Cost Beginning inventory 40 $8 $320 First purchase (April 1) 20 9 180 Second purchase (May 1) 20 10 200 Third purchase (Oct. 1) 20 12 240 Fourth purchase (Dec. 1) 20 13 260 Goods available for sale 120 $1,200 Units sold 72 Units in ending inventory 48 Blue Company Inventory Information Step 1 4 Step 2. Calculate the cost of ending inventory. Step 3. Calculate the cost of goods sold (Step 1 -- Step 2). Step 1. Calculate the cost of goods (merchandise available for sale). Beg Inv. 4/1 5/1 10/1 12/1 Specific Identification Method 5 Cost per Unit Total Cost 20 units from April 1 $ 9 $180 20 units from Oct. 1 12 240 8 units from Dec. 1 13 104 Cost of ending inventory $524 Cost of goods -- Cost of ending = Cost of available for sale inventory goods sold $1,200 -- $524 = $676 Specific Identification Method Step 2 Step 3 6 Step 2. Calculate the cost of ending inventory. Step 3. Calculate the cost of goods sold (Step 1 -- Step 2). Weighted-Average Method Step 1. Calculate the average .
