Best Teaching Practices 11TH Annual Accounting Educators’ Seminar

Linda BellWilliam Jewell College

Inventory Costing Demonstration Using Candy

Inventory

BI+ P_____________________

GASCGS

_____________________

EI

M&M Store

Purchases:1) 8 Brown/Red ($2 each) 2) 7 Blue/Green ($3 each)3) 5 Yellow/Orange ($4 each)

20 Total M&Ms

Sold: 12 ($5 Sales Price)(Assume 4 of each

group)

Outside

Goods Available for Sale Assignment of Cost to Goods Sold and Ending Inventory

Total Specific Identification Method

Unit # of Cost CGS EI

Cost Units Available # $ # $

BI $0 0 $0

P1

P2

P3

GAS Totals

$ 2

$ 3

$ 4

8

7

5

$16

$21

$20

20 $57

4

4

4

4

3

1

$ 8 $ 8

$12 $ 9

$16 $ 4

12 8$36 $21

M&M Store

Purchases:1) 8 Brown/Red ($2 each) 2) 7 Blue/Green ($3 each)3) 5 Yellow/Orange ($4 each)

20 Total M&Ms

Sold: 12 ($5 Sales Price)(Assume FIFO)

Outside

FIFO Cost Flow Assumption

Goods Available for Sale Assignment of Cost to Goods Sold and Ending Inventory

Total First-In First-Out (FIFO) Method

Unit # of Cost CGS EI

Cost Units Available # $ # $

BI $0 0 $0

P1

P2

P3

GAS Totals

$ 2

$ 3

$ 4

8

7

5

$16

$21

$20

20 $57

8

4

0

0

3

5

$ 16 $ 0

$ 12 $ 9

$ 0 $20

12 8$28 $29

M&M Store

Purchases:1) 8 Brown/Red ($2 each) 2) 7 Blue/Green ($3 each)3) 5 Yellow/Orange ($4 each)

20 Total M&Ms

Sold: 12 ($5 Sales Price)(Assume LIFO)

Outside

LIFO Cost Flow Assumption

Goods Available for Sale Assignment of Cost to Goods Sold and Ending Inventory

Total Last-In First-Out (LIFO) Method

Unit # of Cost CGS EI

Cost Units Available # $ # $

BI $0 0 $0

P1

P2

P3

GAS Totals

$ 2

$ 3

$ 4

8

7

5

$16

$21

$20

20 $57

0

7

5

8

0

0

$ 0 $ 16

$ 21 $ 0

$ 20 $ 0

12 8$41 $16

M&M Store

Purchases:1) 8 Brown/Red ($2 each) 2) 7 Blue/Green ($3 each)3) 5 Yellow/Orange ($4 each)

20 Total M&Ms

Sold: 12 ($5 Sales Price)(Assume Weighted Average)

Outside

Goods Available for Sale Assignment of Cost to Goods Sold and Ending Inventory

Total Weighted Average Method

Unit # of Cost CGS EI

Cost Units Available # $ # $

BI $0 0 $0

P1

P2

P3

GAS Totals

$ 2

$ 3

$ 4

8

7

5

$16

$21

$20

20 $57 12 8$34.20 $22.80

$57/20 = $2.85 12 X $2.85 = $34.20 8 X $2.85 = $22.80

So what?

Specific Weighted

Income Statement Identification FIFO LIFO Average

Sales (12 units @ $_____) $ $ $ $

Cost of Goods Sold        

Gross Profit

Operating Expenses 10 10 10 10

Income before Taxes

Income Tax Expense (assume 30%)        

Net Income $ $ $ $

5 60 60 60 60

36 28 41 34

24 32 19 26

2214 9 16 4 7 3 5

10 15 6 11

Her

e’s

Wh

at

There’s more…

Specific Weighted

Balance Sheet Identification FIFO LIFO Average

Current Assets:

Inventory (Ending) $ $ $ $

Stockholders' Equity:

Retained Earnings $ $ $ $

21 29 16 23

10 15 6 11

Specific Weighted

Statement of Cash Flows Identification FIFO LIFO Average

Cash paid for income taxes $ $ $ $

(Assume all income taxes were paid)

And

finall

y…4 7 3 5

The reality is that in all cases 20 pieces of candy were purchased and 12 were sold. The different financial results are merely cosmetic.

Conclusion:

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Thank you for your attention!

Any Questions?