1. LESSON 19-2 Determining the Cost of Merchandise Inventory
6/16/2018
LESSON 19-2
Determining the Cost of Merchandise Inventory

2. 3 Methods of calculating Inventory:
FIFO – First In, First Out
The first merchandise purchased is the first merchandise sold
Examples – perishable items – dairy, meat, frozen foods, bakery, etc.
LIFO – Last In, First Out
The most recent (last) merchandise purchased is the first to sell.
Examples – “new” technology items – iPod, PS3, cell phones, etc.
Weighted Average
An average of all merchandise on hand
LESSON 19-2

3. FIRST-IN, FIRST-OUT INVENTORY COSTING METHOD
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1. Total units on hand
2. Units from the most recent purchase are counted first.
3. Units needed to equal the total units on hand
4. Unit price x FIFO units
5. Total FIFO cost
LESSON 19-2

4. LAST-IN, FIRST-OUT INVENTORY COSTING METHOD
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1. Total units on hand
2. Beginning inventory units
5. Unit price times lifo units
3. Units from the earliest purchase
6. Total lifo cost
4. Units needed to equal total units on hand
LESSON 19-2

5. WEIGHTED-AVERAGE INVENTORY COSTING METHOD
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1. Total cost of inventory available
2. Weighted-average price per unit 1
3. Cost of ending inventory 2 3
LESSON 19-2

6. CALCULATING THE COST OF MERCHANDISE SOLD
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Cost of Merchandise Sold =
(FIFO) Cost of Ending Inventory –
Cost of Merchandise Available for Sale
$1,020.00 –
$386.00 =
$634.00
LESSON 19-2

7. COMPARISON OF INVENTORY METHODS
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LESSON 19-2

8. TERMS REVIEW first-in, first-out inventory costing method
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first-in, first-out inventory costing method
last-in, first-out inventory costing method
weighted-average inventory costing method
LESSON 19-2