Quản trị Kinh doanh - Chapter 6: Inventories and cost of sales

Inventories and Cost of SalesChapter 6PowerPoint Editor: Beth Kane, MBA, CPACopyright @ 2015 McGraw Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 06-C1: Determining Inventory Items 2Determining Inventory ItemsMerchandise inventory includes all goods that a company owns and holds for sale, regardless of where the goods are located when inventory is counted. Goods in TransitGoods Damaged or ObsoleteGoods on ConsignmentC1Items requiring special attention include:3FOB Destination PointPublic CarrierSellerBuyerGoods in TransitPublic CarrierSellerBuyerFOB Shipping PointOwnership passes to the buyer here.C14Goods on ConsignmentMerchandise is included in the inventory of the consignor, the owner of the inventory.C15Goods Damaged or ObsoleteDamaged or obsolete goods are not counted in inventory if they cannot be sold.Cost should be reduced to net realizable value if they can be sold.C16 06-C2: Determining Inventory Costs 7Determining Inventory CostsInvoice CostInclude all expenditures necessary to bring an item to a salable condition and location.Minus Discounts and AllowancesPlus Import DutiesPlus FreightPlus StoragePlus InsuranceC28Most companies take a physical count of inventory at least once each year.Internal Controls and Taking a Physical CountWhen the physical count does not match the Merchandise Inventory account, an adjustment must be made.Good internal controls over count include:Pre-numbered inventory tickets.Counters have no inventory responsibility.Counts confirm existence, amount, andquality of inventory item.Second count is taken.Manager confirms all items counted.C29Inventory Costing under a Perpetual SystemInventory affects . . . The matching principle requires matching costs with sales.Balance SheetIncome StatementC210Inventory Cost Flow AssumptionsC2Management decisions in accounting for inventory involve the following:Items included in inventory and their costs.Costing method (specific identification, FIFO, LIFO,or weighted average).Inventory system (perpetual or periodic).Use of market values or other estimates.11Copyright © 2015 McGraw-Hill EducationA master carver of wooden birds operates her business out of a garage. At the end of the current period,the carver has 17 units (carvings) in her garage, three of which were damaged by water and cannot besold. The distributor also has another five units in her truck, ready to deliver per a customer order,terms FOB destination, and another 11 units out on consignment at several small retail stores. Howmany units does the carver include in the business’s period-end inventory?Units in ending inventoryUnits in storage17Less damaged (unsalable) units(3)Plus units in transit (FOB Destination)5Plus units on consignment11Total units in ending inventory30A distributor of artistic iron-based fixtures acquires a piece for $1,000, terms FOB shipping point.Additional costs in obtaining it and offering it for sale include $150 for transportation-in, $300 forimport duties, $100 for insurance during shipment, $200 for advertising, a $50 voluntary gratuity to thedelivery person, $75 for enhanced store lighting, and $250 for sales staff salaries. For computing inventory, what cost is assigned to this artistic piece?Cost of inventoryCost$1,000Transportation-in (FOB shipping point)150Import duties300Insurance cost100Inventory cost$1,550Key point – How many units does she own at year-end?Key point – What are the necessary costs to get the asset ready for its intended purpose?NEED-TO-KNOW 06-P1: Inventory Costing 13Inventory Cost Flow AssumptionsFirst-In, First-Out(FIFO)Assumes costs flow in the order incurred.Last-In, First-Out(LIFO)Assumes costs flow in the reverse order incurred.Weighted AverageAssumes costs flow at an average of the costs available. P114Inventory Costing IllustrationHere is information about the mountain bike inventory of Trekking for the month of August.P115Specific IdentificationP116First-In, First-Out (FIFO)Cost of Goods SoldEnding InventoryOldest CostsRecent CostsP117First-In, First-Out (FIFO) P118Last-In, First-Out (LIFO)Cost of Goods SoldEnding InventoryRecent CostsOldest CostsP119Last-In, First-Out (LIFO) P120Weighted Average When a unit is sold, the average cost of each unit in inventory is assigned to cost of goods sold. Cost of Goods Available for SaleUnits on hand on the date of sale÷P121Weighted AverageP122NEED-TO-KNOWA company reported the following December purchases and sales data for its only product.DateActivitiesUnits Acquired at CostUnits Sold at RetailDec. 01Beginning inventory5 units @ $3.00 = $15.00Dec. 08Purchase10 units @ $4.50 = $45.00Dec. 09Sales8 units @ $7.00Dec. 19Purchase13 units @ $5.00 = $65.00Dec. 24Sales18 units @ $8.00Dec. 30Purchase8 units @ $5.30 = $42.4036 units$167.4026 unitsThe company uses a perpetual inventory system. Determine the cost assigned to ending inventory and to cost of goods sold using (a) specific identification, (b) FIFO, (c) LIFO, and (d) weighted average. (Round per unit costs and inventory amounts to cents.) For specific identification, ending inventory consists of 10 units, where eight are from the December 30 purchase and two are from the December 8 purchase.P123NEED-TO-KNOWA company reported the following December purchases and sales data for its only product.DateActivitiesUnits Acquired at CostUnits Sold at RetailDec. 01Beginning inventory5 units @ $3.00 = $15.00Dec. 08Purchase10 units @ $4.50 = $45.00Dec. 09Sales8 units @ $7.00Dec. 19Purchase13 units @ $5.00 = $65.00Dec. 24Sales18 units @ $8.00Dec. 30Purchase8 units @ $5.30 = $42.4036 units$167.4026 unitsThe company uses a perpetual inventory system. Determine the cost assigned to ending inventory and to cost of goods sold using (a) specific identification, (b) FIFO, (c) LIFO, and (d) weighted average. (Round per unit costs and inventory amounts to cents.) For specific identification, ending inventory consists of 10 units, where eight are from the December 30 purchase and two are from the December 8 purchase.Regardless of the method used, the cost of 26 units are included in Cost of Goods Sold, and the cost of 10 units are included in Ending InventoryP124NEED-TO-KNOWA company reported the following December purchases and sales data for its only product.DateActivitiesUnits Acquired at CostUnits Sold at RetailDec. 01Beginning inventory5 units @ $3.00 = $15.00Dec. 08Purchase10 units @ $4.50 = $45.00Dec. 09Sales8 units @ $7.00Dec. 19Purchase13 units @ $5.00 = $65.00Dec. 24Sales18 units @ $8.00Dec. 30Purchase8 units @ $5.30 = $42.4036 units$167.4026 unitsThe company uses a perpetual inventory system. Determine the cost assigned to ending inventory and to cost of goods sold using (a) specific identification, (b) FIFO, (c) LIFO, and (d) weighted average. (Round per unit costs and inventory amounts to cents.) For specific identification, ending inventory consists of 10 units, where eight are from the December 30 purchase and two are from the December 8 purchase.Specific Identification MethodNot an inventory assumption - ActualCost of Goods Sold represents the actual cost of the units selected by the customer.Ending Inventory represents the actual cost of the units that remain in ending inventory.P125NEED-TO-KNOWDateActivitiesUnits Acquired at CostUnits Sold at RetailDec. 01Beginning inventory5 units @ $3.00 = $15.00Dec. 08Purchase10 units @ $4.50 = $45.00Dec. 09Sales8 units @ $7.00Dec. 19Purchase13 units @ $5.00 = $65.00Dec. 24Sales18 units @ $8.00Dec. 30Purchase8 units @ $5.30 = $42.4036 units$167.4026 unitsEnding inventory consists of 10 units, where eight are from the December 30 purchase and two are from the December 8 purchase. Specific Identification – Cost of exact units sold are expensed as Cost of Goods Sold.DateActivitiesDec. 01Beginning inventory5 @ $3.00 = $15.005 @ $3.00 = $15.00Dec. 08Purchase10 @ $4.50 = $45.008 @ $4.50 = $36.002 @ $4.50 = $9.00Dec. 19Purchase13 @ $5.00 = $65.0013 @ $5.00 = $65.00Dec. 30Purchase8 @ $5.30 = $42.408 @ $5.30 = $42.4036 units$167.4026 units$116.0010 units$51.40Cost of Goods SoldCost of Ending InventoryUnits Acquired at CostCost of Goods Sold $116.00Ending inventory 51.40Goods available for sale $167.40P126NEED-TO-KNOWDateActivitiesUnits Acquired at CostUnits Sold at RetailDec. 01Beginning inventory5 units @ $3.00 = $15.00Dec. 08Purchase10 units @ $4.50 = $45.00Dec. 09Sales8 units @ $7.00Dec. 19Purchase13 units @ $5.00 = $65.00Dec. 24Sales18 units @ $8.00Dec. 30Purchase8 units @ $5.30 = $42.4036 units$167.4026 unitsPerpetual FIFO – Cost of Goods Sold is calculated at the time of the sale. The first items in are the first items out – expensed as Cost of Goods Sold.DateGoods PurchasedCost of Goods SoldInventory BalanceDec. 15 @ $3.00= $15.00Dec. 810 @ $4.505 @ $3.0010 @ $4.50Dec. 95 @ $3.003 @ $4.507 @ $4.50= $31.50Dec. 1913 @ $5.007 @ $4.5013 @ $5.00Dec. 247 @ $4.5011 @ $5.002 @ $5.00= $10.00Dec. 308 @ $5.302 @ $5.008 @ $5.30$115.00} = $96.50} = $86.50} = $52.40} = $60.00} = $28.50Cost of Goods Sold $115.00Ending inventory 52.40Goods available for sale $167.40P127NEED-TO-KNOWDateActivitiesUnits Acquired at CostUnits Sold at RetailDec. 01Beginning inventory5 units @ $3.00 = $15.00Dec. 08Purchase10 units @ $4.50 = $45.00Dec. 09Sales8 units @ $7.00Dec. 19Purchase13 units @ $5.00 = $65.00Dec. 24Sales18 units @ $8.00Dec. 30Purchase8 units @ $5.30 = $42.4036 units$167.4026 unitsPerpetual LIFO – Cost of Goods Sold is calculated at the time of the sale. The last items in are the first items out – expensed as Cost of Goods Sold.DateGoods PurchasedCost of Goods SoldInventory BalanceDec. 15 @ $3.00= $15.00Dec. 810 @ $4.505 @ $3.0010 @ $4.50Dec. 95 @ $3.002 @ $4.50Dec. 1913 @ $5.005 @ $3.002 @ $4.5013 @ $5.00Dec. 243 @ $3.002 @ $3.00= $6.002 @ $4.5013 @ $5.00Dec. 308 @ $5.302 @ $3.008 @ $5.30$119.00 = $36.00} = $89.00} = $83.00} = $48.408 @ $4.50} = $24.00} = $60.00Cost of Goods Sold $119.00Ending inventory 48.40Goods available for sale $167.40P128NEED-TO-KNOWDateActivitiesUnits Acquired at CostUnits Sold at RetailDec. 01Beginning inventory5 units @ $3.00 = $15.00Dec. 08Purchase10 units @ $4.50 = $45.00Dec. 09Sales8 units @ $7.00Dec. 19Purchase13 units @ $5.00 = $65.00Dec. 24Sales18 units @ $8.00Dec. 30Purchase8 units @ $5.30 = $42.4036 units$167.4026 unitsWeighted Average – Cost of Goods Sold is calculated at the time of the sale. Average cost is equal to cost of goods available at the time of the sale divided by number of units available at the time of the sale.DateGoods PurchasedCost of Goods SoldInventory BalanceDec. 15 @ $3.00= $15.00Dec. 810 @ $4.505 @ $3.0010 @ $4.50$60 / 15 units = $4.00 avg. costDec. 98 @ $4.00 = $32.007 @ $4.00 = $28.00Dec. 1913 @ $5.007 @ $4.0013 @ $5.00$93 / 20 units = $4.65 avg. costDec. 2418 @ $4.65 = $83.702 @ $4.65= $9.30Dec. 308 @ $5.302 @ $4.658 @ $5.30$51.70 / 10 units = $5.17 avg. cost$115.70} = $51.70} = $60.00} = $93.00Cost of Goods Sold $115.70Ending inventory 51.70Goods available for sale $167.40P129 06-A1: Financial Statement Effects of Costing Methods 30Financial Statement Effectsof Costing MethodsBecause prices change, inventory methods nearly always assign different cost amounts.A131Financial Statement Effectsof Costing MethodsAdvantages of MethodsSmoothes out price changes.Better matches current costs in cost of goods sold with revenues.Ending inventory approximates current replacement cost.First-In, First-OutWeighted AverageLast-In, First-OutA1Tax Effects of Costing MethodsThe Internal Revenue Service (IRS) identifies several acceptable inventory costing methods for reporting taxable income.If LIFO is used for tax purposes, the IRS requires it be used in financial statements.A133Consistency in Using Costing MethodsThe consistency principle requires a company to use the same accounting methods period after period so that financial statements are comparable across periods.A134 06-P2: Lower of Cost or Market 35Lower of Cost or MarketInventory must be reported at market value when market is lower than cost.Can be applied three ways:(1) separately to each individual item.(2) to major categories of assets.(3) to the whole inventory.Defined as current replacement cost (not sales price).Consistent withthe conservatismprinciple.P236Lower of Cost or MarketA motor sports retailer has the following items in inventory:P237NEED-TO-KNOWA company has the following products in its ending inventory. (a) Compute the lower of cost or market forits inventory when applied separately to each product. (b) If the LCM amount is less than the recorded costof the inventory, then record the December 31 LCM adjustment to the Merchandise Inventory account.LCMUnitsCostMarketCostMarketBy itemRoad bikes5$1,000$800$5,000$4,000$4,000Mountain bikes45006002,0002,4002,000Town bikes104004504,0004,5004,000Total$11,000$10,000DateDebitCreditDec. 31Cost of Goods Sold1,000Merchandise Inventory1,000Per UnitTotalGeneral JournalP238 06-A2: Financial Statement Effects of Inventory Errors 39Financial Statement Effects of Inventory ErrorsA240Financial Statement Effects of Inventory ErrorsA241Global ViewItems and Costs Making Up InventoryBoth U.S. GAAP and IFRS include in inventory all items that a company owns and holds for sale plus all cost expenditures necessary to bring those items to a salable condition and location. Assigning Costs to InventoryBoth U.S. GAAP and IFRS allow companies to use specific identification, FIFO, and Weighted Average. IFRS does not currently allow use of LIFO. Estimating Inventory CostsBoth U.S. GAAP and IFRS require companies to write down inventory when its value falls below recorded cost. U.S. GAAP prohibits any later increase in value. IFRS does allow reversals of write downs up to the original acquisition cost. Neither allow inventory to be adjusted upward beyond the original cost. 42NEED-TO-KNOWA company had $10,000 of sales in each of three consecutive years 20X1-20X3, and it purchased merchan-dise costing $7,000 in each of those years. It also maintained a $2,000 physical inventory from the beginningto the end of that three-year period. In accounting for inventory, it made an error at the end of year 20X1 thatcaused its year-end 20X1 inventory to appear on its statements as $1,600 rather than the correct $2,000.(a) Determine the correct amount of the company’s gross profit in each of the years 20X1–20X3. (b) Preparecomparative income statements to show the effect of this error on the company’s cost of goods sold andgross profit for each of the years 20X1–20X3.Correct AmountsSales$10,000$10,000$10,000$30,000Cost of goods soldBeginning inventory$2,000$2,000$2,000Cost of purchases7,0007,0007,000Goods available for sale9,0009,0009,000Ending inventory2,0002,0002,000Cost of goods sold7,0007,0007,00021,000Gross profit$3,000$3,000$3,000$9,000Inventory errorSales$10,000$10,000$10,000$30,000Cost of goods soldBeginning inventory$2,000$1,600$2,000Cost of purchases7,0007,0007,000Goods available for sale9,0008,6009,000Ending inventory1,6002,0002,000Cost of goods sold7,4006,6007,00021,000Gross profit$2,600$3,400$3,000$9,000Year 20X1Year 20X2Year 20X3TotalTotalYear 20X1Year 20X2Year 20X3A243 06-A3: Inventory Turnover and Days' Sales in Inventory 44Inventory TurnoverInventory turnover =Cost of goods sold Average inventoryShows how many times a company turns over its inventory during a period. Indicator of how well management is controlling the amount of inventory available.Average Inventory= (Beg. Inv. + End Inv.) ÷ 2 A345Days’ Sales in InventoryReveals how much inventory is available in terms of the number of days’ sales.Days‘ sales in inventory =Ending inventory Cost of goods sold ×365A346 06-P3: Inventory Costing under a Periodic System 47Appendix 6A: Inventory Costing under a Periodic SystemP3LIFO computation of COGS and ending inventory under a periodic system. 48NEED-TO-KNOWA company reported the following December purchases and sales data for its only product.DateActivitiesUnits Acquired at CostUnits Sold at RetailDec. 01Beginning inventory5 units @ $3.00 = $15.00Dec. 08Purchase10 units @ $4.50 = $45.00Dec. 09Sales8 units @ $7.00Dec. 19Purchase13 units @ $5.00 = $65.00Dec. 24Sales18 units @ $8.00Dec. 30Purchase8 units @ $5.30 = $42.4036 units$167.4026 unitsThe company uses a periodic inventory system. Determine the cost assigned to ending inventory and to cost of goods sold using (a) specific identification, (b) FIFO, (c) LIFO, and (d) weighted average. (Round per unit costs and inventory amounts to cents.) For specific identification, ending inventory consists of 10 units, where eight are from the December 30 purchase and two are from the December 8 purchase.P349NEED-TO-KNOWA company reported the following December purchases and sales data for its only product.DateActivitiesUnits Acquired at CostUnits Sold at RetailDec. 01Beginning inventory5 units @ $3.00 = $15.00Dec. 08Purchase10 units @ $4.50 = $45.00Dec. 09Sales8 units @ $7.00Dec. 19Purchase13 units @ $5.00 = $65.00Dec. 24Sales18 units @ $8.00Dec. 30Purchase8 units @ $5.30 = $42.4036 units$167.4026 unitsThe company uses a periodic inventory system. Determine the cost assigned to ending inventory and to cost of goods sold using (a) specific identification, (b) FIFO, (c) LIFO, and (d) weighted average. (Round per unit costs and inventory amounts to cents.) For specific identification, ending inventory consists of 10 units, where eight are from the December 30 purchase and two are from the December 8 purchase.Regardless of the method used, the cost of 26 units are included in Cost of Goods Sold, and the cost of 10 units are included in Ending InventoryP350NEED-TO-KNOWA company reported the following December purchases and sales data for its only product.DateActivitiesUnits Acquired at CostUnits Sold at RetailDec. 01Beginning inventory5 units @ $3.00 = $15.00Dec. 08Purchase10 units @ $4.50 = $45.00Dec. 09Sales8 units @ $7.00Dec. 19Purchase13 units @ $5.00 = $65.00Dec. 24Sales18 units @ $8.00Dec. 30Purchase8 units @ $5.30 = $42.4036 units$167.4026 unitsThe company uses a periodic inventory system. Determine the cost assigned to ending inventory and to cost of goods sold using (a) specific identification, (b) FIFO, (c) LIFO, and (d) weighted average. (Round per unit costs and inventory amounts to cents.) For specific identification, ending inventory consists of 10 units, where eight are from the December 30 purchase and two are from the December 8 purchase.Specific Identification MethodNot an inventory assumption - ActualCost of Goods Sold represents the actual cost of the units selected by the customer.Ending Inventory represents the actual cost of the units that remain in ending inventory.P351NEED-TO-KNOWDateActivitiesUnits Acquired at CostUnits Sold at RetailDec. 01Beginning inventory5 units @ $3.00 = $15.00Dec. 08Purchase10 units @ $4.50 = $45.00Dec. 09Sales8 units @ $7.00Dec. 19Purchase13 units @ $5.00 = $65.00Dec. 24Sales18 units @ $8.00Dec. 30Purchase8 units @ $5.30 = $42.4036 units$167.4026 unitsEnding inventory consists of 10 units, where eight are from the December 30 purchase and two are from the December 8 purchase. Specific Identification – Cost of exact units sold are expensed as Cost of Goods Sold.DateActivitiesDec. 01Beginning inventory5 @ $3.00 = $15.005 @ $3.00 = $15.00Dec. 08Purchase10 @ $4.50 = $45.008 @ $4.50 = $36.002 @ $4.50 = $9.00Dec. 19Purchase13 @ $5.00 = $65.0013 @ $5.00 = $65.00Dec. 30Purchase8 @ $5.30 = $42.408 @ $5.30 = $42.4036 units$167.4026 units$116.0010 units$51.40Cost of Goods SoldCost of Ending InventoryUnits Acquired at CostP352NEED-TO-KNOWDateActivitiesUnits Acquired at CostUnits Sold at RetailDec. 01Beginning inventory5 units @ $3.00 = $15.00Dec. 08Purchase10 units @ $4.50 = $45.00Dec. 09Sales8 units @ $7.00Dec. 19Purchase13 units @ $5.00 = $65.00Dec. 24Sales18 units @ $8.00Dec. 30Purchase8 units @ $5.30 = $42.4036 units$167.4026 unitsDateActivitiesDec. 01Beginning inventory5