Perpetual System ExampleBeginningInventoryNetPurchases+Cost of Goods Available for Sale=Cost of Goods SoldEndingInventory=2014/6/1216
2014/6/12 16 Perpetual System Example Beginning Inventory Net Purchases Cost of Goods Available for Sale + = Ending Inventory = – Cost of Goods Sold
InventoryCostFlow Assumptions· Specific Identification- Eachitem is specifically identified.- Usually used for large or expensive items (cars)FIFO (first in, first out)- Oldest units sold first.. LIFO (last in, last out)- Newest units sold first.?Average Cost- Average cost per unit is calculated by taking theaverage cost of goods available for sale.17
17 Inventory Cost Flow Assumptions • Specific Identification – Each item is specifically identified. – Usually used for large or expensive items (cars). • FIFO (first in, first out) – Oldest units sold first. • LIFO (last in, last out) – Newest units sold first. • Average Cost – Average cost per unit is calculated by taking the average cost of goods available for sale
1. Specific identification costIt assigns to each specific item its exact,specific price. Under this method, the cost flow matches thephysical flow of the goods
1. Specific identification cost • It assigns to each specific item its exact, specific price. • Under this method, the cost flow matches the physical flow of the goods
How to value inventory with theSpecific Identification Method.. Develop a marking system for all items. This maybe in the form of a bar code system or a manualhandwritten system. Keep track of items sold. Once an item is sold,use the marking system to correlate the specificitem to a sale. then calculate total sales.: Deduct the cost of the specific item from the totalinventory to get a new inventory number
How to value inventory with the Specific Identification Method. • Develop a marking system for all items. This may be in the form of a bar code system or a manual handwritten system. • Keep track of items sold. Once an item is sold, use the marking system to correlate the specific item to a sale, then calculate total sales. • Deduct the cost of the specific item from the total inventory to get a new inventory number
Whether Specific IdentificationMethod is widely used too time-consumingnot cost-effective
Whether Specific Identification Method is widely used • too time-consuming • not cost-effective