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Inventory 3!
Now I didn't finish the weighted average
because you tube only has a five minute limit
and I know your brains are dead after watching me that long!
I want to finish the weighted average problem.
The weighted average method is based on the
Cost of Goods Available for Sale
Divided by the units available for sale
We got a cost when we did that of $.353 each
How many do we have in Ending Inventory, and
how many did we sell?
Remember the problem which I still have up here
Sold 50
Those 50 are valued at that weighted average cost of $.353 each.
giving us $17.61 cost of goods sold.
That is the Cost of Goods Sold (COGS).
There is my beautiful handwriting you have been missing.
Then how many are left in ending inventory?
There were 134, we sold 50, 84 are left!
For the weighted average, they are valued at the exact same amount for each, $.353
So, $.353 times 84 =
$29.65, the Ending Inventory.
If you take COGAS of $47.26
and subtract $17.61
you will get the $29.65 COGS.
If you were a periodic business and you figured out the $17.61
you could back into Cost of Goods sold.
That is the Weighted Average method.
Now let's switch to the FIFO method.
FIFO: First In First Out
This is NOT the actual flow.
We are talking about an allocation of cost.
First ones in, purchased, would be the first ones sold.
Now again, deemed to be sold.
We think it is sold, but
it doesn't matter if they are physically the ones sold.
The cost allocation and assignment doesn't have to match the flow of goods.
I am going to say that A LOT.
So, if FIFO
The earliest ones are the ones we sold for accounting.
We want to assign the costs to those early ones.
So the later purchases will be in the Ending Inventory amounts.
Does this make sense?
We still have the same problem, if you wrote it down or refer to the lecture notes.
We had 36 at $40, 50 @ $35, and
48 at $32
The first ones that we purchased
We sold all 36, because, remember we have to find 50...
36 at $.40 is 14.40
That is part of it.
How many more do we need to get to 50?
I just wrote over here in the margin
We need 50, we have 36, so
we have to have 50 - 36 or 14 more.
We are going from top down, so the next layer
is in this bunch in the middle. We are NOT going to sell the whole layer
We are just going to sell part of it.
14 x .35 = 4.90
When I add the two layers together, I get
19.30 and that is cost of goods sold.
With the FIFO method.
Would this be the same number for weighted average? No.
So for Ending Inventory--if the First ones are sold, then
The Last ones are still here.
We call that LISH (Last in still here.) for Ending inventory.
I thought I invented that, and then I saw that in a book, so I guess I didn't invent it!
So, how many do we need to find the cost for in EI (Ending Inventory?)
84
48 at $.32 is $15.36
What does it take to get to 84? It takes 84- 48 or 36 more.
Can we get them in the Aug. 10 middle layer?
Yes.
So 36 cans at $.35 =
12.60 (the video is wrong, it is 12.60!)
So let's account for all the costs.
COGAS (BI plus purchases)
was 47.26
We have just accounted for the ending inventory, 27.96
And we can back into Cost of goods sold.
19.30 - is that the same as what we got ?
yep!
So doing the Ending invetory first is more like the periodic inventory that we do.
Backing into the COGS (periodic).
The perpetual would do it
in might turn out a little different
but it would do the COGS first because
they can!
Does that make sense? Good , time for LIFO in the next video.