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Lecture 19

COMMERCE 1AA3 Lecture Notes - Lecture 19: Weighted Arithmetic Mean


Department
Commerce
Course Code
COMMERCE 1AA3
Professor
Aadil Merali Juma
Lecture
19

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Financial Accounting- COMMERCE 1A03: Class 19
Cost Flow Assumptions
-First-in First-out (FIFO)
-Weighted Average Cost
-LIFO (read up on LIFO Liquidation). Not allowed in Canada.
Specific Identification
-With large and expensive inventory items. it is easy to track the cost of each individual item.
-It is expensive to track individual items, but it is done for unique or very expensive items.
-Can calculate ending inventory:
-Cost of goods available for sale - cost of goods sold OR
-Sum of all remaining inventory
-If you are producing items that are identical (ie. iPhones, bottles) then you do not use this
method
Using FIFO, you would use the first batch’s price.
Using LIFO, you would use the last batch’s price.
Using weighted average, you would use the average across all purchases.
Under FIFO, perpetual and periodic give the exact same answers for Cost of Goods Sold and
Cost of Ending Inventory.
Under Weighted-Average Cost (aka Static Average) periodic, Cost of Goods Sold is:
[ (Cost of Goods Available for Sale)/(# of units available for sale) ] * # of Units Sold
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