Chapter 6A - Inventory Cost Formulas in Periodic Systems.docx

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Business Administration
Course Code
Business Administration 2257
Amy Shuh

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Chapter 6A Inventory Cost Formulas in Periodic Systems October 2, 2013 Michael Hua  In the periodic inventory system, we ignore the different dates of each of the sales  We make the allocation at the end of a period and assume the entire pool of costs is available for allocation at that time  Beginning Inventory + Cost of Goods Purchased = COGAFS – Ending Inventory = COGS  In a periodic inventory system, the cost formulas are applied to the ending inventory, which is then deducted from the cost of goods available for sale to calculate the cost of goods sold Periodic System – First-In, First-Out (FIFO)  The cost of the most recent purchases is assumed to remain in ending inventory  Once the cost of the ending inventory is determined, the COGS is calculated by subtracting the ending inventory (the cost of the units not sold) from the cost of all good available for sale (pool of costs)  The cost of goods sold amounts should be separately calculated and proven in assignments  The results under FIFO in a periodic inventory system are the same as in a perpetual inventory system  Under both inventory systems, the first costs in are the ones assigned to cost of goods sold Periodic System – Average  Weighted average cost is calculated the same as perpetual: dividing the COGAFS by the units available for sale  The difference between the two cost formulas is that this calculation is done after each purch
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