INVENTORY

INVENTORY INVENTORY ESTIMATION METHODS

1. Cost inclusions (PCB) 1. Gross Profit Method

2. Cost exclusions (Pro Abs AdS) a. GP based on Sales (Sales is 100%)
3. Inventory inclusions b. GP based on COGS (COGS is 100%)
a. ECONOMIC CONTROL > PHYSICAL 2. Retail Inventory Method
POSSESSION a. Cost to Retail Ratio
i. Goods in transit i. Average
ii. Consigned goods ii. FIFO
iii. Segregated goods iii. Conservative/ Conventional/
iv. Installment sales LCNRV
v. Goods with buyback iv. FIFO Conservative
agreements or refund offers b. The computation of ratio does not
affect your computation of Ending
INVENTORY SYSTEMS Inventory @ Retail
3. Sales discounts and sales allowances are
Periodic Perpetual not considered in estimation purposes on
Uses temporary Uses permanent accounts both methods
accounts
Suitable for cheap and Suitable for expensive and EXERCISES
high-volume products low-volume products Which of the following is included in
Inventory balance is not Inventory balance is
readily available readily available inventory?
Inventory and COGS are Inventory and COGS are
set up after count updated Items in warehouse
Items returned by customer
Items shipped today, FOB destination
COST FORMULAS Items shipped today, FOB shipping point
Items for display
1. Not ordinarily interchangeable Goods held on consignment
a. Specific Identification Method Goods out on consignment
2. Ordinarily interchangeable Raw materials
a. FIFO Work-in-Process
b. Weighted Average – Periodic Finished goods
c. Moving Average – Perpetual Finished goods held by salesman
Customized goods already segregated
INVENTORY WRITEDOWN Customarily manufactured goods already
segregated
Inventory must be measured at the lower of cost
Goods held by others for storage
and net realizable value
Goods for shipment
1. Cost < NRV = No additional entry
2. Cost > NRV = Inventory writedown Compute for cost of inventory
a. Direct
i. Record directly to Inventory Direct Materials and Labor 180
b. Allowance Variable Production Overhead 25
Factory Administrative Costs 15
i. Set up allowance, which is a
Fixed Production Costs 20
deduction from Inventory
Normal freight-in charge 30
ii. Check if allowance has
Abnormal freight-in charge 12x
existing balance when Handling cost 20
recording Purchases 100
Import duties 40
 INVENTORY

Compute for Cost of Missing

Inventory using Gross Profit Method

Inventory, Beginning 650

Purchases 2,300
Purchase Returns 80
Freight In 60
Sales 3,400
Sales Discounts 20
Sales Returns and Allowances 30

The company’s was robbed and only P420

inventory remained. GP rate based on sales is 30%.

Compute for Cost of Goods Sold and

Cost of Ending Inventory using Retail
Inventory Method (all approaches)

Beginning Inventory @ cost 70

Beginning Inventory @ retail 126
Purchases @ cost 340
Purchases @ retail 438
Freight In 4
Departmental Transfer In @ cost 6
Departmental Transfer In @ retail 9
Purchase allowances 2
Departmental Transfer Out @ cost 8
Departmental Transfer Out @ retail 12
Net Markup 24
Net Markdown 10
Sales 380
Sales Discounts 10
Sales Allowances 5
Normal Shrinkage 3
Abnormal Shrinkage @ Cost 18
Abnormal Shrinkage @ Retail 22
Employee Discounts 1