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Efficient Inventory Management Methods: Costing & Estimation

Learn to determine inventory quantity & cost, choose FIFO, LIFO, or Weighted-Average methods, estimate inventory using Gross Profit, and analyze the impact on net income.

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Efficient Inventory Management Methods: Costing & Estimation

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  1. Chapter 19 Accounting for Inventory

  2. 14. Determining quantity of inventory, cost of inventory, and estimating inventory Most efficient quantity of inventory Larger than needed consequences Smaller than needed consequences Periodic inventory (physical) When do companies take inventory? Perpetual inventory (book) Inventory record, stock record, stock ledger Universal Product Code (UPC)

  3. INVENTORY RECORD page 566 1 3 2 1. Write the stock number and description before the periodic inventory begins. 2. Write the actual count in the No. of Units on Hand column. 3. Write the unit price and calculate the total cost after the physical inventory is completed. LESSON 19-1

  4. STOCK RECORD page 567 1 3 2 1. Purchase information 2. Sales information 3. New balance on hand LESSON 19-1

  5. 14. Determining quantity of inventory, cost of inventory, and estimating inventory Cost of Merchandise Inventory First in-first out inventory costing method (FIFO) Last in-first out inventory costing method (LIFO) Weighted-average inventory costing method

  6. FIRST-IN, FIRST-OUT INVENTORY COSTING METHOD page 569 3 4 2 5 1 1. Total units on hand 2. Units from the most recent purchase 3. Units needed to equal the total units on hand 4. Unit price times fifo units 5. Total fifo cost LESSON 19-2

  7. 3 2 4 1 LAST-IN, FIRST-OUT INVENTORY COSTING METHOD page 570 5 6 1. Total units on hand 2. Beginning inventory units 5. Unit price times lifo units 3. Units from the earliest purchase 6. Total lifo cost 4. Units needed to equal total units on hand LESSON 19-2

  8. WEIGHTED-AVERAGE INVENTORY COSTING METHOD page 571 1. Total cost of inventory available 2. Weighted-average price per unit 1 3. Cost of ending inventory 2 3 LESSON 19-2

  9. Cost ofMerchandiseAvailable for Sale – Fifo Cost of EndingInventory = Cost ofMerchandiseSold CALCULATING THE COST OF MERCHANDISE SOLD page 572 $1,020.00 – $386.00 = $634.00 LESSON 19-2

  10. COMPARISON OF INVENTORY METHODS page 572 Effect on gross profit and net income? LESSON 19-2

  11. 14. Determining quantity of inventory, cost of inventory, and estimating inventory Estimating inventory Gross profit method

  12. GROSS PROFIT METHOD OF ESTIMATING INVENTORY page 574 (continued on next slide) LESSON 19-3

  13. GROSS PROFIT METHOD OF ESTIMATING INVENTORY page 574 (continued from previous slide) LESSON 19-3

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