Kinh tế học - Chapter 18: Inventory and overhead

Chapter 18Inventory and OverheadList the key assumptions of each inventory methodCalculate the cost of ending inventory and cost of goods sold for each inventory methodInventory and Overhead#18Learning Unit ObjectivesAssigning Costs to Ending Inventory - Specific Identification; Weighted Average; FIFO; LIFOLU18.1Calculate the cost ratio and ending inventory at cost for the retail methodCalculate the estimated inventory, using the gross profit methodExplain and calculate inventory turnoverExplain overhead; allocate overhead according to floor space and salesInventory and Overhead#18Learning Unit ObjectivesRetail Method; Gross Profit Method; Inventory Turnover; Distribution of OverheadLU18.2Perpetual Inventory System - keeps a running account of inventory by updating with each transactionInventory SystemsPeriodic Inventory System - Relies on a physical count of inventory done periodically Number of Cost Total Units Purchased per unit costBeginning Inventory 40 $8 $320First Purchase (April 1) 20 9 180Second Purchase (May 1) 20 10 200Third Purchase (Oct. 1) 20 12 240Fourth Purchase (Dec. 1) 20 13 260Goods available for sale 120 $1,200Units Sold 72Units in ending inventory 48Blue Company - Inventory InformationStep 1Step 2. Calculate the cost of ending inventoryStep 3. Calculate the cost of goods sold (Step 1- Step 2) Step 1. Calculate the cost of goods (Merchandise available for sale)BegInv.4/15/110/112/1Specific Identification Method Cost per unit Total cost20 Units from April 1 $ 9 $18020 Units from Oct. 1 $12 240 8 Units from Dec. 1 $13 104Cost of ending inventory $524Cost of goods - Cost of ending = Cost ofavailable for sale inventory goods sold$1,200 - $524 = $676Step 3Step 2Specific Identification MethodWeighted Average MethodWeighted avg = Total cost of goods available for sale = $1,200 = $10Unit cost Total number of units available for sale 120 Average cost of ending inventory: 48 units at $10 = $480Cost of goods sold = $1,200 - $480 = $720 Number of Cost Total Units Purchased per unit costBeginning Inventory 40 $8 $320First Purchase (April 1) 20 9 180Second Purchase (May 1) 20 10 200Third Purchase (Oct. 1) 20 12 240Fourth Purchase (Dec. 1) 20 13 260Goods available for sale 120 $1,200Units Sold 72Units in ending inventory 48First-In, First-Out Method20 Units from Dec. 1 at $13 $26020 Units from Oct. 1 at $12 240 8 Units from May 1 at $10 8048 units in ending inventory $580 Cost of goods sold:$1,200 - $580 = $620 Number of Cost Total Units Purchased per unit costBeginning Inventory 40 $8 $320First Purchase (April 1) 20 9 180Second Purchase (May 1) 20 10 200Third Purchase (Oct. 1) 20 12 240Fourth Purchase (Dec. 1) 20 13 260Goods available for sale 120 $1,200Units Sold 72Units in ending inventory 48Last-In, First-Out Method40 Units from beginning inventory at $8 $320 8 Units from Apr 1 at $9 7248 units in ending inventory $392 Cost of goods sold:$1,200 - $392 = $808 Number of Cost Total Units Purchased per unit costBeginning Inventory 40 $8 $320First Purchase (April 1) 20 9 180Second Purchase (May 1) 20 10 200Third Purchase (Oct. 1) 20 12 240Fourth Purchase (Dec. 1) 20 13 260Goods available for sale 120 $1,200Units Sold 72Units in ending inventory 48Estimating Inventory - Retail MethodStep 1. Calculate the cost of goods available for sale at cost and retailStep 2. Calculate a cost ratio using the following formulaCost of goods available for sale at costCost of goods available for sale at retail Step 3. Deduct net sales from cost of goods available for sale at retailStep 4. Multiply the cost ratio by the ending inventory at retail Cost RetailBeginning Inventory $4,000 $6,000Net purchases during month 2,300 3,000Cost of goods available for sale (Step 1) $6,300 $9,000Less net sales for month (Step 3) 4,000Ending Inventory at retail $5,000Cost ratio ($6,300/$9,000) (Step 2) 70%Ending Inventory at cost ($5,000 x .70) (Step 4) $3,500Estimating Inventory - Retail MethodEstimating Inventory - Gross Profit MethodStep 1. Calculate the cost of goods available for sale (Beginning inventory + Net purchases)Step 2. Multiply the net sales at retail by the complement of the gross profit rate. This is the estimated cost of goods sold Step 3. Calculate the cost of estimated ending inventory (Step 1- Step 2)Assuming the following, calculate the estimated inventoryGross profit on sales 30%Beginning inventory June 1, 2009 $20,000Net purchases 8,000Net sales at retail for June 12,000 Beginning Inventory, June 1, 2009 $20,000 Net purchases 8,000Cost of goods available for sale (Step 1) $28,000Less estimated cost of good sold: Net sales at retail $12,000 Cost Percentage (100% - 30%) x .70 (Step 2) Estimated cost of goods sold - 8,400 Estimated ending inventory, June 30, 2009 $19,600 (Step 3)Estimating Inventory - Gross Profit MethodInventory TurnoverThe number of times inventory is replaced during a specific timeInventory turnover at retail = Net sales Average inventory at retailInventory turnover at cost = Cost of goods sold Average inventory at costInventory TurnoverNet sales $32,000 Cost of goods sold $22,000Beginning inventory at retail 11,000 Beginning inventory at cost 7,500Ending inventory at retail 8,900 Ending inventory at cost 5,600Average inventory = Beginning inventory + Ending inventory 2At retail = $32,000 = $32,000 = 3.22 $11,000 + $8,900 $9,950 2At cost = $22,000 = $22,000 = 3.36 $7,500 + $5,600 $ 6,550 2Usually higher due to theft, spoilage, markdowns, etc.Calculating the Distribution of Overhead by Floor SpaceStep 1. Calculate the total square feet in all departmentsStep 2. Calculate the ratio for each department based on floor space Step 3. Multiply each department’s floor space ratio by the total overheadDepartment A - 6,000 square feet Department B - 3,000 square feet Department C - 1,000 square feet Overhead of $90,000 Floor space RatioDepartment A 6,000 6,000 = 60% 10,000 Department B 3,000 3,000 = 30% 10,000Department C 1,000 1,000 = 10% 10,000Department A .60 x $90,000 = $54,000 Department B .30 x $90,000 = $27,000 Department C .10 x $90,000 = $ 9,000Step 1 & 2Calculating the Distribution of Overhead by Floor Space (Roy Company)Calculating the Distribution of Overhead by SalesStep 1. Calculate the total sales in all departmentsStep 2. Calculate the ratio for each department based on sales Step 3. Multiply each department’s sales ratio by the total overheadCalculating the Distribution of Overhead by Sales (Morse Company) Sales RatioDepartment A $80,000 $ 80,000 = .80 $100,000Department B 20,000 $20,000 = .20 $100,000 $100,000Department A .80 x $60,000 = $48,000Department B .20 x $60,000 = $12,000 $60,000TotalOverhead ExpensesMorse Company distributes its overhead expenses based on the sales of its departments. For example, last year Morse’s overhead expenses were $60,000. Sales of its two departments were as follows, along with its ratio calculation.