DeVry University, Chicago - ACCT 212 121

Devry Acct212 Week 4 Discussion 1 Inventory Management (graded) A review of the balance sheet of a retailer, such as Wal-Mart, will disclose that in current assets the majority investment is in inventory. With manufac ...

Devry Acct212 Week 4 Discussion 1 Inventory Management (graded) A review of the balance sheet of a retailer, such as Wal-Mart, will disclose that in current assets the majority investment is in inventory. With manufacturers, such as Ford, the inventory is spread between three different categories. Let's start our discussion with some basic inventory questions. How is inventory valued? Which inventory valuation method is most popular and why? What impact on the financial reports can the selection of an inventory valuation method have? This section lists options that can be used to view responses. Collapse All Print View Show Options Responses Responses are listed below in the following order: response, author and the date and time the response is posted. Sort by Read/Unread Sort by Response Sorted Ascending, click to sort descending Sort by Author Sort by Date/Time* (an instructor response) Collapse Mark as Unread Inventory Valuation Methods Professor Baugh Email this Author 9/19/2015 6:33:41 AM Class, When answering the main discussion question remember that there are four inventory valuation methods. Collapse Mark as Read RE: Inventory Valuation Methods Tiffany Ramsey Email this Author 9/22/2015 5:38:23 PM Inventory is valued by taxes. FIFO and LIFO are the most popular method used. Collapse Mark as Read RE: Inventory Valuation Methods Ricky Sanders Email this Author 9/22/2015 9:41:54 PM The four inventory valuation methods are: 1. The specific-unit-cost method is also called the specific identification method. 2. Average-cost method, sometimes called the weighted-average method, is based on the average cost of inventory during the period. 3. Under the FIFO method, the first costs into inventory are the first costs assigned to cost of goods sold —hence the name first-in, first-out. 4. LIFO (last-in, first-out) costing is the opposite of FIFO. Under LIFO, the last costs into inventory go immediately to cost of goods sold, as shown in the diagram on the following page. Compare LIFO and FIFO, and you will see a vast difference. According to our textbook chapter 6 page 347 "Financial Accounting for DeVry University" www.pearsonhighered.com ISBN13:978-0-13-275112-4 Collapse Mark as Read RE: Inventory Valuation Methods Cerissa White Email this Author 9/26/2015 12:26:06 PM Ricky, Very well stated and simply put. When reading your post, you make inventory valuation methods very easy to understand. Thanks Collapse Mark as Unread RE: Inventory Valuation Methods Randall Warren Email this Author 9/23/2015 6:55:43 AM Two of the inventory methods are fifo or first in first out or lifo or last in first out. Depending on the type of inventory that you have and the prices of the inventory depends on which of these methods you would use for your company. (an instructor response) Collapse Mark as Unread RE: Inventory Valuation Methods Professor Baugh Email this Author 9/23/2015 1:00:24 PM Ricky, Good response. The explanation of the four inventory costing methods are as follows: Last-in, first-out (LIFO) – most recent items purchased are sold first, leaving oldest items in ending inventory. Gives the highest Cost of Goods Sold when costs are increasing, would give the lowest Cost of Goods Sold if costs were decreasing. Provides outdated costs on the balance sheet because it is using up the recently purchased items first, however it portrays a more realistic picture on the income statement because the current revenues are being associated with the current costs. First-in, first-out (FIFO) - oldest inventory is sold first, leaving the most recent items purchased in ending inventory. Gives the highest ending inventory when costs are increasing, would give the lowest ending inventory when costs are decreasing. More recent costs are listed on the Balance Sheet, however outdated costs are listed on the Income Statement (current revenue is being associated with old costs). Specific unit cost – also called the specific identification method, used for unique items, too costly to use for inexpensive items, each item can be specifically identified based on characteristics it possesses, items in inventory are based on its individual cost. Average cost – get average cost of inventory, divide Cost of Goods Available (COGA) by the number of units available to determine average cost per unit. You can multiply the calculated amount by the number of units sold to get Cost of Goods Sold or you can multiply the amount by the number of units remaining in inventory to get Ending Inventory (EI). Collapse Mark as Read RE: Inventory Valuation Methods Jacquelyn Person Email this Author 9/23/2015 6:40:23 PM The four inventory valuation methods are: Specific Unit Cost (specific identification method) Average cost First-in, first-out(FIFO) cost Last-in,first-out (LIFO) cost Which inventory valuation method is most popular and why? LIFO AND FIFO are the two most common methods LIFO method causes the higher priced material to be sold first and the lower priced material to be left for inventory, which will be counted and will reflect in an increase int cost of goods sold. and lower the taxes to be paid on the inventory of the lower priced material. FIFO method will reflect a lower cost of goods sold if prices increase on material, because you are selling lower priced items first. (an instructor response) Collapse Mark as Unread Inventory Professor Baugh Email this Author 9/19/2015 6:34:09 AM Class, We are beginning Week 4. This is such an exciting time. You all have covered a lot so far and you are catching on very well. We are starting this week off discussing Inventory. Let's consider the following questions: What is Inventory? What category is inventory classified as on the Balance Sheet?, and finally, how does the sale of Inventory affect the Balance Sheet and the Income Statement? Collapse Mark as Read RE: Inventory Brooke Avila Email this Author 9/21/2015 9:31:30 AM Merchandise Inventory are items that are an asset (which appears on the left of the balance sheet) to the company before it is sold. After the merchandise is sold it is it is no longer inventory, it is recorded as cost of good sold, or cost of sale which is recorded on the income statement.