Computing the Cost of InventoryCost of inventory on hand = Quantity X unitcost Physical count is made at least once ayear, even with a perpetual system. Consigned goods are excluded
Cost of inventory on hand = Quantity × unit cost Computing the Cost of Inventory • Physical count is made at least once a year, even with a perpetual system. • Consigned goods are excluded
Inventory CountsInventory countsNecessary under both the periodic and theperpetual method.With a periodic system, a physical count is theonly way to get the information necessary tocompute cost of goods sold.Under perpetual method, physical countsallow companies to determine inventoryshrinkage.Shrinkage equals the difference between whatending inventory should be what the count revealsit is
7 Inventory Counts • Inventory counts – Necessary under both the periodic and the perpetual method. – With a periodic system, a physical count is the only way to get the information necessary to compute cost of goods sold. – Under perpetual method, physical counts allow companies to determine inventory shrinkage. • Shrinkage equals the difference between what ending inventory should be what the count reveals it is
Perpetual SystemIt maintains a continuous record forinventory on hand.It is often used by a business that sellsproducts of high unit value
Perpetual System • It maintains a continuous record for inventory on hand. • It is often used by a business that sells products of high unit value
Perpetual Inventory CostsInventory cost data to demonstratePerpetual SystemsItem127BUnitsCostPrice10$201Jan.Inventory47$30Sale81021Purchase22431Sale28232Sale103022Purchase
Perpetual Inventory Costs Inventory cost data to demonstrate Perpetual Systems Item 127B Units Cost Price Jan. 1 Inventory 10 $20 4 Sale 7 $30 10 Purchase 8 21 22 Sale 4 31 28 Sale 2 32 30 Purchase 10 22
Perpetual Inventory Card (FIFO)Item127BPurchasesCost of Mdse.SoldInventoryBalanceUnitUnitTotalUnitTotalTotalDateQty.Qty.CostCostCostCostCostCostQty.1020200Jan. 1720341402060310821206016882116822320601217212114722142528211055301022212201051022220181315$388$263S325Totals
Item 127B Purchases Cost of Mdse. Sold Inventory Balance Unit Total Unit Total Unit Total Date Qty. Cost Cost Qty. Cost Cost Qty. Cost Cost Jan. 1 10 20 200 4 7 20 140 3 20 60 10 8 21 168 3 20 60 8 21 168 Perpetual Inventory Card (FIFO) 22 3 20 60 1 21 21 7 21 147 28 2 21 42 5 21 105 30 10 22 220 5 21 105 10 22 220 Totals 18 $388 13 $263 15 $325