basic instructions for fifo inventory method
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Basic Instructions for FIFO Inventory Method under the periodic system.TRANSCRIPT
FIFO Inventory Valuation Methods
MJC Revised 12/2010 Page 1
Chart 1
Inventory-listing chart in the order items were purchased during the year.
Purchase Dates Number of
units
Cost per
unit
Total
extended cost
Beginning inventory
(oldest material) 20 7 140
First purchase of the year 40 8 320
Second purchase 30 9 270
Third purchase 20 10 200
Fourth purchase
(Newest Material) 30 11 330
Units Available for sale and Goods Available for Sale
(Total of all purchases plus beginning inventory) 140 X $1,260
Less: Units Sold 80
Units in ending inventory 60
How to Create Chart 1- the Inventory-Listing Chart
1. Create the chart of items, which will display in order from oldest to newest the beginning
inventory and all of the items in inventory that were purchased during the year. Start with
the beginning inventory, which is any item(s) left in stock at the end of the prior year.
Then list in order of purchase date items of inventory purchased during the year. You will
start the chart with the four columns which will be labeled as follows:
(a)
Purchase Dates
(b)
Number
of units
(c)
Cost per
unit
(d)
Total
extended cost
(b) X (c) = (d)
2. Fill in the information of how many purchases, the number of units per purchase, the cost
per unit for each purchase. Multiply across the number of units times the cost per unit to
get the total extended cost.
3. Total down the columns for number of units and total extended cost. This will give you
total units and goods available for sale. There is no need to total column (c) Cost per unit
because it provides no useful information.
4. Subtract the total units sold for the total units available for sell in column (b) Number of
units to get the number of units in ending inventory.
FIFO Inventory Valuation Methods
MJC Revised 12/2010 Page 2
FIFO Method
Chart 1-Use chart 1 from page 1.
Chart 2 – the calculation for the value of ending inventory:
Purchase Date Number of units Cost per unit Total Extended Cost
Forth purchase 30 11 330
Third purchase 20 10 200
Second purchase 10 9 90
Total ending cost 60 $620
Chart 3 – the calculation for the value of Cost of Goods Sold:
Item Title Amount
Goods Available for Sale 1,260
Less: Cost of Ending Inventory 620
Equals: Cost of Goods Sold $640
Chart 4 – the calculation for the value of Cost of Goods sold using the check method.
Item Title Number of units Cost per unit Total Extended Cost
Beginning Inventory 20 7 140
First purchase 40 8 320
Second purchase 20 9 180
Cost of Goods Sold 80 X 640
*Note that the total cost in chart 4 is the same as the total cost in chart 3.
FIFO Inventory Valuation Methods
MJC Revised 12/2010 Page 3
FIFO Method
How to create chart 2 – the cost of ending inventory chart for FIFO
1. For FIFO you will need to use these headings for chart 2:
(a) Purchase Date
(b) Number of units
(c) Cost per unit
(d) Total Extended Cost
2. FIFO starts from the bottom of the inventory-listing chart, which is chart 1. Use number
of unit’s column (b) and count up until you reach the number of units in the ending
inventory. On chart one each row is designated by the date those units were purchased.
The rows have the number of units that were purchased on that date in time, the unit price
paid for those units along with the total extended cost for all the units purchased on that
date.
You will find that in counting units in chart 1 from the bottom up that the number of
ending units for the last row to complete the total number of units in ending inventory
may not be completely used up because some of those units were sold during the year and
therefore are no longer in the ending inventory. For the last row used, you will need to
multiply the number of units that are needed to complete the total ending inventory times
the cost per unit to get the correct value for the row.
3. Once you have the units counted out then multiply out the unit by the unit cost in each
row to get the total extended cost.
4. Now total the columns for number of units and total extended cost. These two columns
will give you ending inventory in units and ending inventory cost. Never total the column
for cost per unit down because it has no useful meaning or value.
How to create chart 3 – Cost of Goods Sold chart for FIFO
1. For FIFO you will need to use this chart:
Item Title Amount
Goods Available for Sale
Less: Cost of Ending Inventory
Equals: Cost of Goods Sold
2. Goods Available for Sale in dollar amounts comes from chart 1 - the inventory-listing
chart. You will find that information at the bottom of the chart on the right hand side of
your page.
FIFO Inventory Valuation Methods
MJC Revised 12/2010 Page 4
3. Next is Less Cost of Ending Inventory, which comes from chart 2 at the bottom of that
chart.
4. Now subtract cost of ending inventory from goods available for sale to arrive at cost of
goods sold.
How to create chart 4 – Cost of Goods Sold Chart Using the Check Method for FIFO
1. For FIFO you will need to use this chart:
(a)
Item Title
(b)
Number of units
(c)
Cost per unit
(d)
Total Extended Cost
Beginning Inventory
First purchase
Second purchase
Cost of Goods Sold X
2. For the check method, you start at the top of chart 1. List items down until you complete
the number of units sold during the year. As in counting up for ending inventory their
will most likely be units in the last row where some units were sold and some units are
still in ending inventory. You will have to recalculate the total extended cost for that row
with only the units you are using.
3. Next, recalculate out the total extended cost for each row to make sure that you have
rechecked your calculations. Failure to do this recheck could lead to unwanted errors.
4. Finally total the columns down for number of units and total extended cost this will give
you units sold and cost of goods sold.
5. Now check your total for chart 4 against the total in chart 3 if the totals match then you
have a correct ending total for cost of goods sold.