Acct. 221 1st Edition Lecture 11Outline of Last Lecture  Events Affecting Sales Lost, Damaged or Stolen Inventory Multistep Income Statement Other principals  Gross Margin Percentage Financing Merchandise InventoryOutline of Current Lecture I. Inventory Cost Flow Methods a. Specific identificationb. LIFOc. FIFOd. Weighted average CostCurrent Lecture Inventory Cost Flow Methods Used to assign the total dollar amount of goods available for sale between ending inventory and cost of goods sold Physical flow of goods and Cost Flow (Cost of Goods Sold), do not have to match (Farmer ex.) Specific Identification- Specific cost of each inventory item is known- Used with small volume, high dollar inventory  First-in, first-out (FIFO)- The cost of the oldest inventory items are charged to cost of goods sold when goods are sold- The cost of the newest inventory items remain in the ending inventory- The actual physical flow of inventory items may differ from the FIFI cost flow assumptions Last-in, last-out (LIFO)- The cost of the newest inventory items are charged to cost of goods sold when goods are sold- The cost of the oldest inventory items remain in ending inventoryThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.- The actual physical flow of inventory items may different from the LIFO cost flow assumptions.  Weighted Average - Take the average cost of all goods available for sale to value both COGS and ending inventory- Be sure its WEIGHTED FIFO ex. First units bought go to COGS first!ORIGINAL INFORMATIONDate Event Units Price Total1-Mar Beg. Inv 10 6 6010-Mar Purchase 12 7 8415-Mar Purchase 11 8 88 Total 33 23227-Mar Sale 18 15 270FIFO METHODDate Event Units Price Total1-Mar 10 6 6010-Mar 8 7 56 Total 18 116  LIFO ex. Last units bought go to COGS first!ORIGINAL INFORMATIONDate Event Units Price Total1-Mar Beg. Inv 10 6 6010-Mar Purchase 12 7 8415-Mar Purchase 11 8 88 Total 33 23227-Mar Sale 18 15 270LIFO METHODDate Event Units Price Total15-Mar 11 8 8810-Mar 7 7 49 Total 18 137 18 units were sold:Using FIFO, we use the costs from the very first inventory!Therefore we take as many available frombeginning inventory (10 were priced at $6 so we use 10 from this cost)Since we sold 8 more, we take the cost ofthe next 8 items of inventory which cost $7 We sold 18 units:Using LIFO we used the most recent costs.We take 11 from the March 15th purchase(our most recent purchase) which were $8We then take 7 from the March 10th purchase (our second most recent purchase)**LIFO reports the lowest net income so it results in a deferral of taxes, and the best cash flow. Weighted Average ex. Cost of Goods Available for Sale = 232 Divided by: # of units of Good Available for Sale =33 =