Question

In: Accounting

For all four inventory costing methods, cost of goods sold is always equal to the sum...

For all four inventory costing methods, cost of goods sold is always equal to the sum of beginning inventory plus net purchases.

True

False

Solutions

Expert Solution

  • The statement given is FALSE.
  • Cost of Goods Sold DOES NOT EQUAL to the sum of beginning inventory + Net purchases.
  • For All 4 methods, Cost of Goods Sold + “Cost of Ending Inventory” = Beginning Inventory + Net purchases.
  • Example:
    Beginning Inventory = 100 units at $10 each.
    Purchases = 50 units at $11 each
    Units Sold = 110 units
    Ending Inventory = 40 units

Using FIFO ( although the results will be same for all 4 methods):

FIFO

Cost of Goods available for sale

Cost of Goods Sold

Ending Inventory

Units

Cost/unit

COG for sale

Units sold

Cost/unit

COGS

Units

Cost/unit

Ending inventory

Beginning Inventory

100

$    10.00

$    1,000.00

100

$    10.00

$       1,000.00

0

$    10.00

$                   -  

Purchases:

50

$    11.00

$       550.00

10

$    11.00

$          110.00

40

$    11.00

$         440.00

TOTAL

150

$    1,550.00

110

$       1,110.00

40

$         440.00

---Beginning Inventory + Net purchases = $ 1,550
---Cost of Goods Sold = $ 1,110
---Ending Inventory = $ 440

---Cost of Goods Sold + Ending Inventory = 1110 + 440 = $ 1,550 = Beginning Inventory + Net Purchases.


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