Not really. Specific Since specific identification is hard to use identification is so when we sell a lot of easy, can'nt we use inventory that has lots of it all the time? different costs Irwin/McGraw-Hill ?The McGraw-Hill Companies, Inc., 1999
?The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Since specific identification is so easy, can’nt we use it all the time? Not really. Specific identification is hard to use when we sell a lot of inventory that has lots of different costs
Average-Cost Method When a unit is sold the average cost of each unit in inventory is assigned to cost of goods sold Cost of goods Units on hand Available for on the date of Sale sale Irwin/McGraw-Hill ?The McGraw-Hill Companies, Inc., 1999
?The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Average-Cost Method 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 Sale Units on hand on the date of sale
Average-Cost Method Example vento Date Purchases Cost of Goods sold Balance Aug1 10 $91 910 $910 Aug.315@$106=:1590 $2,500 On August 14, TBC sold 20 bikes for $130 each. Continue Irwin/McGraw-Hill ?The McGraw-Hill Companies, Inc, 1999
?The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill Average-Cost Method Example On August 14, TBC sold 20 bikes for $130 each. Continue Date Purchases Cost of Goods Sold Inventory Balance Aug. 1 10 @ $ 91 = $ 910 $ 910 Aug. 3 15 @ $ 106 = $ 1,590 $ 2,500
Average-Cost Method Example nventory Date Purchases Cost of Goods sold Balance Aug.110@s91=5910 910 Aug.315/@-:106=$1590 2500 The average cost per unit must be computed prior to $100=$2,500÷25 each sale Continue Irwin/McGraw-Hill ?The McGraw-Hill Companies, Inc., 1999
?The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill $100 = $2,500 25 Date Purchases Cost of Goods Sold Inventory Balance Aug. 1 10 @ $ 91 = $ 910 $ 910 Aug. 3 15 @ $ 106 = $ 1,590 $ 2,500 Average-Cost Method Example Continue The average cost per unit must be computed prior to each sale
Average-Cost Method Example Inventory Date Purchases Cost of goods sold Balance Aug. 110 $91 910 $910 Aug315@s106-1590 $2,500 Aug. 14 20@$100=$2005500 The average cost per unit is $100. $100=$2,500÷25 Let's look at the entries Continue for the Aug 14 sale Irwin/McGraw-Hill The McGraw-Hill Companies, Inc, 1999
?The McGraw-Hill Companies, Inc., 1999 Irwin/McGraw-Hill $100 = $2,500 25 Date Purchases Cost of Goods Sold Inventory Balance Aug. 1 10 @ $ 91 = $ 910 $ 910 Aug. 3 15 @ $ 106 = $ 1,590 $ 2,500 Aug. 14 20 @ $ 100 = $ 2,000 $ 500 Average-Cost Method Example Continue The average cost per unit is $100. Let’s look at the entries for the Aug. 14 sale