ACTG 1P12 Lecture : Chapter 6 - Observations on Invertory Costing Methods.docx
14 Apr 2012
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When prices are rising, fifo will produce a lower cost of goods sold (cogs) and higher profit vs. the weighted average or lifo. When prices are falling, fifo will produce a higher cost of goods sold (cogs) and lower profits vs. Using cost of goods sold to estimate ending inventory. Gross profit g. p: gross profit percentage = g. p / sales, since g. p = sales cogs, cogs% = 1 g. p% Cogs = beginning inventory + purchases ending inventory: therefore, we can solve for ending inventory, or for purchases assuming we have the remaining figures. Also note: beginning inventory, + purchases, = cogas, ending inventory, cogs xx xx xx xx xx. However, the effect of any inventory error with self-correct itself over 2 consecutive periods. Assume a company with ,000 of sales per year; purchases of ,000 per year and constant inventory of ,000 on hand each year. Relationship between e. i and g. p, b. i and gp:
