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CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 6-2 Inventory Costing FIFO inventory costing method LIFO inventory costing method Weighted-average.

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Presentation on theme: "CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 6-2 Inventory Costing FIFO inventory costing method LIFO inventory costing method Weighted-average."— Presentation transcript:

1 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 6-2 Inventory Costing FIFO inventory costing method LIFO inventory costing method Weighted-average costing method Lower of cost or market inventory costing method

2 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Chapter 6 Objectives Inventory Planning and Valuation After studying Chapter 6, you will be able to: Define accounting terms related to planning and costing inventory. Identify accounting concepts and practices related to planning, counting, and costing inventory. Describe the nature of merchandise inventory. Determine the cost of merchandise inventory using selected costing methods. Estimate the cost of merchandise inventory using selected estimating methods. Calculate merchandise inventory turnover ratio and average number of days’ sales in merchandise inventory. 2 LESSON 6-2

3 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Lesson 6-2 first-in, first-out inventory costing method (FIFO): using the price of merchandise purchased first to calculate the cost of merchandise sold first last-in, first-out inventory costing method (LIFO): using the price of merchandise purchased last to calculate the cost of merchandise sold first weighted-average inventory costing method: using the average cost of beginning inventory plus merchandise purchased during a fiscal period to calculate the cost of merchandise sold lower of cost or market inventory costing method: using the lower of cost or market price to calculate the cost of ending merchandise inventory 3 LESSON 6-2

4 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 4 LESSON 6-2 1.Assign units from most recent purchase. 2.Assign units from next most recent purchase. 3.Multiply ending inventory units by unit price. 4.Total the ending inventory columns. FIRST-IN, FIRST-OUT INVENTORY COSTING METHOD page 176 1 2 3 4

5 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 5 LESSON 6-2 1.Assign units from earliest purchase. 2.Assign units from next earliest purchase. 3.Multiply ending inventory units by unit price. 4.Total the ending inventory columns. LAST-IN, FIRST-OUT INVENTORY COSTING METHOD page 177 1 2 4 3

6 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 6 LESSON 6-2 WEIGHTED-AVERAGE INVENTORY COSTING METHOD page 177

7 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 7 LESSON 6-2 COSTING INVENTORY DURING PERIODS OF INCREASING PRICES page 178

8 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 8 LESSON 6-2 COSTING INVENTORY DURING PERIODS OF DECREASING PRICES page 179

9 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 9 LESSON 6-2 RESULTS OF THE THREE INVENTORY COSTING METHODS COMPARED page 179

10 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 10 LESSON 6-2 1.Calculate the cost. 2.Calculate the market price. 3.Determine the smaller number to use as the lower of cost or market amount. LOWER OF COST OR MARKET INVENTORY COSTING METHOD page 180 123

11 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 11 LESSON 6-2 DEFINE TERMS REVIEW In Quizlet first-in, first-out inventory costing method last-in, first-out inventory costing method weighted-average inventory costing method lower of cost or market inventory costing method page 181 Edit this set: Chapter 6 AdvAcc (then SAVE)

12 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Exit Ticket for today: Audit Your Understanding 6-2 1.What inventory costing method does a business usually use? 2.Which inventory costing method uses the earliest purchase prices to determine the cost of merchandise inventory? 3.During a period of increasing prices, what inventory costing method will result in the highest reported net income? 4.What two amounts are needed to apply the lower of cost or market inventory costing method? 12 LESSON 6-2 In a Word Document, SaveAS: Chapter6-2AYUYourName And drop in my Inbox today!

13 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Complete the following assignments for Chapter 6-2 today Define Terms Review on page 181. Answer Audit Your Understanding questions on page 181. Complete Work Together 6-2 on Aplia – page 181. Complete On Your Own 6-2 on Aplia – page 181. Complete Application Problem 6-2 on Aplia – page 189. 13 LESSON 6-2

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