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Hello everyone we are here again and last class period what we did is we talked about
inventory methods FIFO and LIFO and first in, last out and last in, first out and I
assigned some homework for those methods. What we are going to do today is we are going
to go over the homework or at least go over the homework in regards to FIFO and LIFO then
I am going to teach you some other methods, I am going to teach you weighted average and
I'm going to teach you specific identification and I'm going to teach you specific ID. So
when you leave class today you will have four methods for keeping track of your inventory.
Alright now I asked you to do BB's Boating is that correct? Okay and let's take a look
at the answers if you would. Okay I hope you can read this, there are the answers you should
have right there okay there is the answers that you should have. Do those answers check
out, I want to make sure is anybody agreeing with those? So now I want to tell you something
really important here. Okay now let's say this were a test question, what I might do
is give two points for each test question. Now here is the bummer on this, if you miscalculate
something on the beginning you are going to miss all of them aren't you? Now here is what
I am not going to do, let me tell you what I am going to do and then let me tell you
what I am not going to do; when I grade this on a test, I am going to look to see if you
had that number on the blank. Now if you want to use the inventory sheets that's fine, if
you are some sort of genius and you can just do it in your head and put the number down
then that's fine. All I'm going to be doing is looking to see if you have that number
in the blank. You have to have that number to get credit; if you have any other number
then you are not going to get credit. Here is what I am not going to do, the first answer
is 153 right, and let's say you have 170. I am not going to go through your inventory
sheet and try to see where you went wrong and give partial credit. I did that my first
semester I taught and it was a nightmare okay I couldn't be fair. It was very hard to be
fair and it took very long to return. So this is definitely going to be one of those things
if you have time on the test to do your answers twice. If you don't have time to do it twice
then look over it very carefully to make sure you don't have any silly math errors. Because
unfortunately there will be people who make mistakes on the very first one and then they
missed all of them. Okay with all of the students I have, and all of the inventory flow sheets,
there is no way I can go through all of them so that is very important. Let's take a look
at those answers again and I'll take a look at how we got them. Those are the answers,
so if this were a test question they would be worth two points each. This could be worth
twenty points right there couldn't it. Okay let's see how we got that information. Okay
hopefully you can read this. This is the LIFO method is it not. I'm sorry thank you for
correcting me, it is the FIFO method. As a matter of fact let me just type this here.
This is the FIFO method okay this is the FIFO method for BB's. So take a look at your detail
there and see if you got it right and I am happy to answer any questions that you may
have. I wrote the first one, the nine units at seventeen on the left column and over on
the other side. What she is saying is was this specifically stated as beginning inventory.
Sometimes people will put it in this column and in this column. That's fine, alright but
do those answers that are highlighted in yellow check out with yours? Okay make sure in this
column that you are not putting the sales price. This is cost per unit okay; let's take
a look at LIFO. Ok this is LIFO for BB's so take a look at that and see if it checks out with you answers. You can see
the answers that are highlighted on the answer sheet are highlighted in yellow. Always be
real cognitive of what I am asking for, I asked for this one in a little different way,
I asked for the inventory at April first and then again at April tenth and you can see
that some of these answers were the same for both methods. Nothing was different until
we actually made a sale correct? Alright, any questions on that? Now the other one I assigned was a new technique
right? I'm not going to assign that because I want to make sure we get through what we
need to get through today. So if we have time we will do that at the end of the hour, let's
shift gears. One question we had, I think it was you Jake who asked me during the break
when the music was rolling is why would anybody use last in first out? Last in first out is
the last in is still here and the first in is the... did I say that right? Grandpa is
getting confused, let me start over. You asked me Jake why anybody would use LIFO and LIFO
stands for what; last in first out the door with a customer, the first in is still here
in the inventory and I know what you are thinking, if you were a grocery store that would be
pretty nasty wouldn't it. The watermelons, the first in when you opened the store, hat
if you opened the store ten years ago and the first watermelons are still here, that's
pretty gross isn't it. And of course we also talked about the FIFO method, the first in
is the first out and the last in is still here in ending inventory, now that makes a
little more sense doesn't it. Because when you go into a store their earliest purchases
are still in there and their latest ones are already out the door. Well it's important
to know this, the inventory we choose; FIFO or LIFO whichever inventory method we choose
reality doesn't need to actually reflect that. Okay does that make sense, reality doesn't
need to reflect the method that we choose. And this will be rally obvious to think about
for a while, now that being said we will need to think about these products that move in
that manner. Now we don't have to have reality reflect the method that we choose, most methods
move in some sort of a FIFO manner do they not? Let me give you an example, and I'm not
a good artist here so bear with me. Let's say you go to the grocery store and this is
your shopping cart right? And this is the milk cooler okay. And the milk is usually
sitting here to purchase right, the gallons of milk. It's usually sloped down. And when
the guy from the milk company comes in he puts milk here and it slides down right? Now
this is the way milk is sold and a lot of things are sold. And this is pretty much a
FIFO method right? The last in is still here but the first in is still out the door with
the customer okay, most things move in a FIFO manner. Now has anybody ever figured out that
trick where you go buy milk so which one do you reach for? you reach for the one in the
back, now if you do that and if the grocery store is using the FIFO method, nobody is
going to run out of the controllers or the accounting office and say oh my goodness sakes
can you please not take that milk because we use the FIFO method. The first in first
out method and if you actually take one of the latest purchases, it is going to mess
us up. If this grocery store uses both methods you are going to be pretty close to the FIFO
method but once again reality does not need to reflect the method that we choose. A grocery
store could even use the LIFO method if they wanted to. Okay, does that make sense? Now
I am going to ask you a question and this is a hard one and you are going to give me
some answers and you will probably not be right, and that's ok. But can you think of
something, can you think of a product that actually moves in a LIFO manner? How do we
answer that; something that moves in a LIFO manner. LIFO is last in first out the door
which means that the first in is still here. That would mean that if I went to this place
of business the actual first products were still there. Can you think of something that
actually moves in that manner? I need answers, let me tell you may get it wrong and if you
get it wrong you are on camera. Alright does anybody want to try? Jake, okay he says clothes
and why would you say clothes? Because of like fashion and stuff, so they are still
going to have old inventory and they get in the new so they don't want to put on the old,
it may get put on a clearance rack or something. See I don't think that works, I don't think
that's right god bless you. So if I go to Kohl's or JC Penny's, let's say I go to JC
Penny's that's over by us. It's been there about ten years. Am I really going to see
the clothes still on the rack from when they opened that store ten years ago? See what
you told me is really indicating a FIFO manner; we are going to get rid of the old style.
We don't want this anymore we want the new stuff. So you could try, but I doubt if I
go to JC Penny's that is ten years old I will see stuff from ten years ago. Okay used car
dealerships, so what that would mean then is if I went to a used car dealer that had
been around for twenty years that the cars they started with twenty years ago were still
there on the lot. I like where you are going but I think used cars are a little more convoluted,
some people are going to buy a car that has been there forever, and some people are going
to buy a car that got there today. Okay and it's going to be all over the place, scattered.
Some people have said wine. And I think their thought process was that older wine is more
valued. I don't know if that works either, again if I went to a liqueur store that had
been there for twenty years I doubt the wine on their shelves would be the wine that was
there when they opened. It's hard to think of something that moves in a LIFO manner,
I'll give you one okay one and one really good one. The really good one is one a student
gave me and I told them I would use it forever because it is such a perfect example. The
first one okay, the first one would be let's say you are in a sporting goods store and let's say they have a big bin full of
soccer balls. They buy some soccer balls and put them at the bottom, some more time goes
by and they buy some more and put them at the bottom some time goes by and they buy
some more and they put them at the bottom some time goes by and they buy some more soccer
balls and they put them there. Well this guy here, when he gets a soccer ball is probably
going to take this one. Are you with me? Okay probably not going to dig down to the bottom.
That's an ok one. If that is the case then that is a LIFO situation, the last ones are
the first out the door with the customer and the last ones are still here in ending inventory.
I am asking you to think of specific items. Okay a better example would be this, have
you ever driven in the industrial part of town? And seen these big places that sell
sand? They dredge up sand from the river or however they make sand and they put it in
these big piles. And these piles are like what, three four five stories high. Well think
about that, think about that. They have a big pile of sand, well then when they get
new sand from the river they put it right on top right? And when they get new sand they
put it right on top. Well then a dump truck comes in and where do you think they get their
sand, they need sand where do you think they are going to pull it from, right about there
right? As a matter of fact if they never moved that pile of sand the earliest sand could
be there a long time couldn't it? First in still here does that make sense? It's kind
of interesting to think about things and how they actually move. But again the method we
choose to value our inventory does not need to mirror reality. Are you with me, okay cool?
Alright let's see what's next on my agenda, um ok I'm going to before class I'm going
to shift gears now and we are going to talk about the weighted average method okay. Now
before class began I asked everybody in the classroom to give me their age, how old they
were. And I wrote each age down on a little block okay. Now that is the ages, I did not
include my own age in here you probably noticed that okay. I'm 31 but I won't include it okay.
Now this is the age of everybody in the room. Now cameras real quick just do a shot of the
room so people can kind of see who we are dealing with. Okay now come back to here,
if I wanted to find the average age of a student in this classroom, how would I do that? We
know how to do this don't we; how do we do it? We would add them all up and divide by
11 right? So let's go ahead and do that and to make it a little easier what I like to
do sometimes is I like to kind of group them. We have a wide variety of ages in this class.
So why don't you help me figure out because I haven't done it; figure out what the total
of these numbers is. Let's just do that together. Okay I have a number do you have a number?
What is the total number if you add all of those numbers together, I'm not asking the
average, but what do you get? I get the same thing, I get 243. Okay now how many people
are in this room or how many blocks are there? One two three four five six seven eight nine
ten eleven, there are eleven correct? So to figure out the average we have to divide that
by eleven and what do you get? Twenty two point O nine. So from our work I have the
average age of a person in this room at being twenty two point O nine years of age. Is that
what you have got? Now this is important. Is this a reasonable answer? Look around at
yourselves. Is twenty two point O nine a reasonable age for the person in this classroom? Every
now and then people will do this and they will say I have the age as forty seven point
three. Really? There is nobody here even near that age, if I told you the average of you
al was forty seven and some would you believe me; no. or somebody will say that the average
age is five point six years old. So the average age of my student here is five and a half
years old roughly? Do you see what I'm saying? Whenever you figure out an average, always
step back and ask yourself; is this a reasonable answer? Now let's look back at the LMO. They
could have probably guessed that it would be somewhere right about there right? We have
got some higher and we have got some that are lower. That is the weighted average message
correct? That is the weighted average method and the way that we do that with inventory
is very much the same. Okay, let me give you an example. Let's go back to my wonderful
Pixar animation, okay we have our retail show room; we purchased three items at a cost of
ten dollars. Some time went by and then we purchased five more of the same item. But
the cost had gone up to twelve dollars per, correct? Some time went by and we purchased
two more items and the cost had gone up to thirteen. Now let's say then we make a sale,
remember how many units we sold, we sold four units right? Well when we make a sale in the
weighted average method, we figure out the weighted average. We don't have to do this
until we make a sale. But now that we have made a sale we are going to figure out the
weighted average of these. Okay so let's do this. Okay that layer is thirty, that layer
is sixty, that layer is twenty six right. So that equals what one hundred and sixteen?
Divided by how many; one two three four five six seven eight nine ten, divided by ten.
That equals a weighted average cost of eleven point six O. I always like to take it to two
decimal places. So don't round that to twelve. So that is eleven point sixty, now looking
at these blocks, is that a reasonable answer? I would think that it is, I would say that
it is. So when you sell, when you make a sale of four items we are going to say that we
sold four at a cost to get sold at eleven sixty. And that equals what; forty six forty
I believe. Actually let me do it this way, I think this will be better. Okay when we
sell something we will say we sold four at eleven sixty, the weighted average and what
is that is that forty six forty? Okay, now we had ten and we sold four, how many items
do we have left? We had ten items, we sold four, we have six items left. Well what we
are going to say at this point is our ending inventory is six and what do you think we
are going to say the cost per unit is; eleven sixty. Six times eleven sixty is sixty nine
sixty, thank you. Okay so here is our situation, here is what it was but once we sell those
items, in effect we are going to say that is done. What we are going to say is once
we sell those four items, we are going to act like we have six items at eleven sixty.
Does that make sense, and if we buy more we will put them here and figure out a new average
are you with me well we are going to do one in class what I want you to do is turn to
your inventory handout and I believe there is one called abc Ink, this is what it looks
like on the screen abc ink weighted average, do you have that? So let's go ahead we are
going to take about six minutes and you folks at home you go ahead and do that too you do
abc ink on your handout. Okay lets go over the answer to abc ink, I wanted you to do
the weighted average method you didn't need to do any other method. Just the weighted
average method on that okay so let's take a look at the screen okay we start of looking
at the bottom of your screen there. We start off at fifty dollars each the price has gone up
so now we have ten and forty eight and seven and fifty alright now we do not need to figure
out the weighted average here. Because we haven't made a sale yet alright then we purchased eight more and the price has gone
up to fifty four so now these are the layers that we have here, we add these up and we
have the total inventory amount. Now we get ready to make the sale and how many items
did we sell fifteen okay now we have to figure out the weighted average. So we take our total
inventory value of twelve sixty two divided by our total number of items in our inventory
which in this case is twenty five. And we get fifty dollars and forty eight cents per
unit average cost. Okay it's just like when we figured out the weighted average of your
all ages. Okay now is that a reasonable answer; fifty dollars and forty eight cents? Yes I
can look at these numbers and I can see that that is a reasonable answer. Now don't round
that to fifty point five and don't round that to fifty point O eight. If it goes out to
three decimal places then you can round it up to two decimal places. So now we had twenty
five units so we are going to say we have fifteen at fifty dollars and forty eight cents.
So how many did we have left' ten twenty five minus fifteen equals ten and we are going
to say that those ten in ending inventory are at fifty dollars and forty eight cents.
Okay those other layers are gone cool? Some time goes by and we purchase five more at
fifty five now we have those ten at fifty forty eight and we five at fifty five our
ending inventory is seventy seven nine eight are you with me okay so again though on a
test if this is a test question all I'm going to be asking for is did you get these numbers
okay I'm not going to look at your detail I'm just going to check those blanks are you
with me those are the answers are those what you all got? Um I don't think I'm going to
have time to go through a new technique today and we are not done so don't get excited I
am going to give you check figures though for a new technique. Let me zoom in on that
so you can see that so if you didn't do it right we will go over the answer in detail
next class period can you see that back there? Five five one two point fifty for FIFO ending
inventory and forty eight hundred for LIFO ending inventory did anybody get those? For
LIFO ending inventory is forty eight hundred and cost of goods sold is eleven thousand
four twelve point five O. did you get those too. So if you didn't get those on the new
technique take a look at the FIFO and LIFO method and try to get those figures and we
will go over that in detail okay cool you got that? Okay alright coming off of that
I'm going to teach you one more method real quick and it's a real easy method oh before
we do that can you think of any product that might move in a weighted average method. The
way that I always came up for something in a weighted average method would be like when
you go to quick trip and buy gasoline they got this big tank underground right. Well
there is all sorts of gas in there, some of it has been higher priced and some of it has
been lower priced. But it has all kind of been mixed in there together. That's kind
of a weighted average method. But again the method you choose doesn't need to reflect
reality and now that we know the weighted average method we know that for most products
the weighted average method would be impossible wouldn't it? Okay that would be impossible
at a grocery store okay things couldn't move in a weighted average method okay the last
thing I want to teach you about is called the specific identification method or the
specific ID method. Okay let's go back to my show room the retail show room now these
are what we were dealing with this has been the situation right? In the specific id method
in the let me write this down in the specific id method the customer comes in to make a
purchase and we are going to specifically identify the ones he purchases. So let's say
he buys one of these and one of these and he bought this one and he bought this one.
So his cost of goods sold would be that and that goes out the door with the customer.
And this is what is left okay this sort of method would be the method we would choose
when we know exactly which one was sold. There is none of was it the fort one was it the
last one no we know exactly which one was sold. You may know of an example of a company
that uses the specific ID method. Somebody said it before, a used car lot. Think about
it a used car lot when you sell a car you are going to look at that id number on the
car and you are going to know exactly the id number on that car you are going to know
exactly that. There is not going to be any of well was it this car it is going to be
exactly that car and if you go purchase four used cars you are going to know each one exactly
the cost. You are going to see this more with companies that sell larger higher priced items.
Right that is the specific ID method. And sometimes they will even have to tell you
there are the ones that were specifically sold and sometimes they might tell you these
are specifically the ones that were not sold and are in ending inventory then you have
to back into the ones that must have been sold. Cool alright so you have got four methods
let me look at my agenda to see if we have gone over everything alright here is what
we are going to do we have about two or three minutes here, alright what I want you to do
for homework is I want you to do new technique if you didn't do FIFO and LIFO if you didn't
do your homework Jake um if you didn't do your homework this is a chance to do your
homework, do FIFO and LIFO but I also want you to do your new technique. So once you
come to class the next time that whole handout should be done. Okay so do new technique and
will go over all three methods, the answers for new technique okay I also want you to
do exercise six point three in your books exercise six point three in your books and
if you want take an inventory sheet these are online I have these online under lesson
tabs for chapter six. Or you know some of you don't need to use them, I need to use
them. But for exercise six point three I want you to do those that's all four methods okay.
Does that make sense? And then lastly I am going to give you folks here in class and
I want you at home to act like I did this for you at well I don't want you to forget
chapter five we had too much fun with chapter five so I am going to give you a quiz over
chapter five. It is going to be like exercise five point two numbers one and two. Yeah so
the quiz that we have at the very beginning of the hour don't be late will be like exercise
five point two requirements one and two it is going to have the JE's for the buy and
then the seller and that is why I want to do it. Okay because it is going to be on the
test and I want you to know how to do that okay so does everybody know what we are going
to do does everybody know what the agenda is for the next time? Okay see you guys later
goodbye.