Question

please explain

how to calculate various inventory valuation methods [FIFO, LIFO, weighted average, etc.]

how to calculate cost of goods sold when using different inventory valuation methods

how to calculate ending inventory when using different inventory valuation methods

how to calculate ending inventory when gross profit rate is given

Answer 1

Answer 1

FIFO stands for First In First Out. Under this method Goods purchased first should be sold first.

LIFO stands for Last In First Out. Under this method Goods purchased last should be sold first.

Under weighted average method average cost is calculated after each purchase. Then goods sold are valued at that weighted average cost.

Cost of goods sold

Under FIFO cost of goods sold is calculated by taking beginning inventory and purchases done after that.

Under LIFO cost of goods sold is calculated by taking goods purchased last and then goods purchased before last purchase.

Under weighted average method cost of goods sold is calculated by multiplying units sold with average cost per unit.

Ending inventory

Under FIFO ending inventory is calculated by taking the goods purchased last in that period.

Under LIFO ending inventory is calculated by taking the beginning inventory and purchases made earlier in that period.

Under weighted average method ending inventory is calculated by multiplying ending units with average cost per unit.

If gross profit rate is given:

If gross profit rate is given then derive gross profit amount by using sales value. Then deduct gross profit from sales which will give cost of goods sold. At last add beginning inventory with purchases during the period and deduct cost of goods sold. The balance will be ending inventory.