1. Lifo Periodic
200 $9
Jan. 1 Beginning Inventory
300 $10
Mar. 10 Purchase
400 $11
Sept. 21 Purchase
100 $12
Nov. 18 Purchase
1,000 units available for sale during year
Using lifo, the most recent batch purchased is considered the first batch of merchandise sold.

2. Assume again that 700 units were sold during the year.
Lifo Periodic
200 $9
Jan. 1 Beginning Inventory
Assume again that 700 units were sold during the year.
300 $10
Mar. 10 Purchase
400 $11
Sept. 21 Purchase
100 $12
Nov. 18 Purchase
1,000 units available for sale during year

3. Lifo Periodic 200 units @ $9 = $1,800 Jan. 1 = 3,000 Mar. 10
= 4,400 Sept. 21
= 1,200 Nov. 18
Sold 200 of these
300 $10
100 $10
1,000
Sold these 400
400 $11
Sold these 100
100 $12
1,000 units available for sale during year
Ending Inventory
$2,800
$10,400

4. Lifo Periodic Cost of merchandise available for sale $10,400
Less ending inventory 2,800
Cost of merchandise sold $ 7,600

5. Cost of Merchandise Sold
Summary of Lifo Periodic
Cost of Merchandise Sold
Merchandise
Available
for Sale
Purchases
$1,800
200 units at $9
$1,800
Jan. 1
200 units at $9
$1,000
100 units at $10
$1,800
$2,800
300 units
Mar. 10
300 units at $10
$3,000
Cost of
Merchandise
Sold
Sep. 21
400 units at $11
$4,400
$2,000
200 units at $10
Nov. 18
100 units at $12
$1,200
$4,400
400 units at $11
1,000 units
$10,400
$1,200
100 units at $12
$7,600
700 units

6. Average Cost Periodic
200 $9
Jan. 1 Beginning Inventory
The average cost periodic method is based on the average cost of identical units.
300 $10
Mar. 10 Purchase
400 $11
Sept. 21 Purchase
100 $12
Nov. 18 Purchase
1,000 units available for sale during year

7. Average Cost Periodic 200 units @ $9 = $ 1,800
1,000 units available for sale during year
$10,400 Cost of merchandise available for sale

8. Average Cost Periodic Cost of Merchandise Available for Sale
= Average Unit Cost
Units Available for Sale During Year
$10,400
1,000 Units
= $10.40 per Unit

9. Average Cost Periodic Cost of merchandise available for sale $10,400
Less ending inventory ($10.40 x 300) 3,120
Cost of merchandise sold $ 7,280
To verify this amount, multiply 700 units sold times $10.40 to get the same $7,280.

10. Valuation of Inventory at Lower-of-Cost-or-Market
Unit Unit
Inventory Cost Market Total Total Lower
Item Quantity Price Price Cost Market C or M
$ 3,800
2,700
4,650
3,920
Total $15,520 $15,472 $15,070
A 400 $10.25 $ $ 4,100 $ 3,800
B ,700 2,892
C ,800 4,650
D ,920 4,130
The market decline based on individual items
($15,520 – $15,070) = $450

11. Metro-Arts Balance Sheet December 31, 2007
Presentation of Merchandise Inventory on the Balance Sheet
Metro-Arts Balance Sheet December 31, 2007
Assets
Current assets:
Cash $
Accounts receivable $
Less allowance for
doubtful accounts
Merchandise inventory
at lower of cost (first-in,
first-out method) or market

12. Estimating Inventory Cost

13. Retail Method of Estimating Inventory Cost
Retail method is based on relationship between cost of merchandise available for sale and the retail price.
Retail prices of all merchandise must be accumulated and totaled.
Inventory at retail is calculated at retail price of merchandise available for sale less net sales at retail.
Ratio is calculated as cost divided by retail price.
Inventory at retail price times cost ratio equals estimated cost of inventory.

14. Retail Inventory Method
Cost Retail
Merchandise inventory, Jan. 1 $19,400 $ 36,000
Purchases in January (net) , ,000
Merchandise available for sale $62,000 $100,000
$62,000
$100,000
Ratio of cost to retail price =
= 62%
Step 1: Determine the ratio of cost to the retail price.

15. Retail Inventory Method
Cost Retail
Merchandise inventory, Jan. 1 $19,400 $ 36,000
Purchases in January (net) , ,000
Merchandise available for sale $62,000 $100,000
Sales for January (net) ,000
Merchandise inventory, January 31, at retail $ 30,000
Step 2: Determine the ending inventory at retail.

16. Retail Inventory Method
Sales for January (net) ,000
Merchandise inventory, January 31, at retail $ 30,000
Cost Retail
Merchandise inventory, Jan. 1 $19,400 $ 36,000
Purchases in January (net) , ,000
Merchandise available for sale $62,000 $100,000
Merchandise inventory, January 31, at cost
($30,000 x 62%) $18,600
Step 3: Calculate the estimated inventory at cost.

17. Gross Profit Method of Estimating Inventory Cost
1. A gross profit percentage rate is estimated based on previous experience adjusted for known changes.
2. Estimated gross profit is calculated by multiplying the estimated gross profit rate times the actual net sales.
3. Estimated cost of merchandise sold is calculated by subtracting the gross profit from actual sales.
4. The cost of merchandise sold estimate is deducted from actual merchandise available for sale to determine the estimated cost of merchandise inventory.

18. Gross Profit Method
Merchandise inventory, January 1 $ 57,000
Purchases in January (net) 180,000
Merchandise available for sale
Sales in January (net) $250,000
Less: Estimated gross profit
Estimated cost of merchandise sold
Estimated merchandise inventory, January 31
$237,000
($250,000 x 30%) ,000
175,000
$ 62,000
The gross profit method is useful for estimating inventories for monthly or quarterly financial statements in a periodic inventory system.

19. Inventory Turnover
SUPERVALU Zale
Cost of merchandise sold $15,620,127,000 $ 737,188,000
Inventories:
Beginning of year $1,115,529,000 $478,467,000
End of year 1,067,837, ,669,000
Total $2,183,366,000 $1,050,136,000
Average $1,091,683,000 $525,068,000
Inventory turnover 14.3 times 1.4 times
Use: Inventory turnover measures the relationship between the volume of goods sold and the amount of inventory carried during the period.

20. Number of Days’ Sales in Inventory
SUPERVALU Zale
Average daily cost of
merchandise sold:
$15,620,127,000/365 $42,794,868
$737,188,000/365 $2,019,693
Ending inventory $1,067,837,000 $571,669,000
Average selling period 25 days 283 days
Use: To assess the efficiency in the management of inventory

21. Chapter 9
The End