{"id":3601,"date":"2020-10-21T16:42:51","date_gmt":"2020-10-21T16:42:51","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/wm-financialaccounting\/?post_type=chapter&#038;p=3601"},"modified":"2020-11-16T21:29:25","modified_gmt":"2020-11-16T21:29:25","slug":"inventory-cost-methods","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/chapter\/inventory-cost-methods\/","title":{"raw":"Inventory Cost Methods","rendered":"Inventory Cost Methods"},"content":{"raw":"<div class=\"textbox learning-objectives\">\r\n<h3>Learning Outcomes<\/h3>\r\n<ul>\r\n \t<li>Illustrate the use of specific identification cost flow assumption<\/li>\r\n \t<li>Illustrate the use of weighted average cost flow assumption<\/li>\r\n \t<li>Illustrate the use of First-in, First-out (FIFO) cost flow assumption<\/li>\r\n \t<li>Illustrate the use of Last-in, First-out (LIFO) cost flow assumption<\/li>\r\n<\/ul>\r\n<\/div>\r\nHere is an overview of the cost flow assumptions:\r\n\r\nhttps:\/\/www.youtube.com\/watch?v=GUKrEoHIEH8\r\n\r\nIn order to put this principle in context, let\u2019s take a simple example and apply each of the four examples in turn. We\u2019ll assume that NewCo Sporting Goods has decided to start selling baseball bats in October, starting with a model called the Slugger, and that the company made three purchases, listed in the table below. Notice that the cost of each bat is different for each purchase.\r\n<table class=\"fin-table gridded\"><caption>Purchases<\/caption>\r\n<tbody>\r\n<tr>\r\n<td style=\"text-align: left;\" colspan=\"5\"><strong>NewCo Sporting Goods<\/strong><\/td>\r\n<\/tr>\r\n<tr>\r\n<td style=\"text-align: right;\" colspan=\"5\"><strong>12\/31\/20XX<\/strong><\/td>\r\n<\/tr>\r\n<tr aria-hidden=\"true\">\r\n<td colspan=\"5\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<th scope=\"col\">Product ID<\/th>\r\n<th scope=\"col\">Description<\/th>\r\n<th scope=\"col\">Cost<\/th>\r\n<th scope=\"col\">Quantity<\/th>\r\n<th scope=\"col\">Purchases<\/th>\r\n<\/tr>\r\n<tr>\r\n<td>Slugger<\/td>\r\n<td>purchased 10\/15\/20XX<\/td>\r\n<td>10.00<\/td>\r\n<td>10<\/td>\r\n<td>100.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Slugger<\/td>\r\n<td>purchased 11\/15\/20XX<\/td>\r\n<td>12.00<\/td>\r\n<td>25<\/td>\r\n<td>300.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Slugger<\/td>\r\n<td>purchased 12\/15\/20XX<\/td>\r\n<td>15.00<\/td>\r\n<td>8<\/td>\r\n<td>120.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<th colspan=\"4\" scope=\"row\">Total Inventory Value<\/th>\r\n<td>$ 520.00<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nSay at the end of the year you have 12 bats left in stock, according to your physical count, and that for simplicity's sake, you have decided to use the periodic method of accounting for inventory, where you wait until the end of the year to compute COGS. You have the following information:\r\n<ul>\r\n \t<li style=\"font-weight: 400;\">Beginning inventory was zero because this is your first year in business.<\/li>\r\n \t<li style=\"font-weight: 400;\">You purchased three different \u201clots\u201d of baseball bats, 43 in total, with a total cost of $520.<\/li>\r\n \t<li style=\"font-weight: 400;\">There are 12 bats in ending inventory.<\/li>\r\n<\/ul>\r\nWhat cost do you assign to those 12 bats? The answer is, it depends on the cost flow assumption used.\r\n\r\nLet\u2019s take a quick look at each cost flow assumption using the periodic method, and then we\u2019ll apply what we have learned to the perpetual method.\r\n<h2>1. Specific Identification<\/h2>\r\nTechnically, the specific identification method of assigning costs to items in inventory isn\u2019t an assumption because it is a direct assignment of the cost of the item purchased to the item. Assume that when each bat came in, we put a sticker on it. Green for the $10 bats, red for the $12 bats, and blue for the $15 bats. We look at the 12 bats in ending inventory and specifically identify which ones are left. We find two green bats, six red bats, and four blue bats.\r\n<div align=\"left\">\r\n<table class=\"fin-table gridded\"><caption>Inventory List<\/caption>\r\n<tbody>\r\n<tr>\r\n<td style=\"text-align: left;\" colspan=\"7\"><strong>NewCo Sporting Goods<\/strong><\/td>\r\n<\/tr>\r\n<tr>\r\n<td style=\"text-align: right;\" colspan=\"7\"><strong>12\/31\/20XX<\/strong><\/td>\r\n<\/tr>\r\n<tr aria-hidden=\"true\">\r\n<td colspan=\"7\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<th scope=\"col\">Product ID<\/th>\r\n<th scope=\"col\">Description<\/th>\r\n<th scope=\"col\">Cost<\/th>\r\n<th scope=\"col\">Quantity<\/th>\r\n<th scope=\"col\">Total Purchases<\/th>\r\n<th colspan=\"2\" scope=\"col\">Ending Inventory<\/th>\r\n<\/tr>\r\n<tr>\r\n<td>Slugger<\/td>\r\n<td>purchased 10\/15\/20XX<\/td>\r\n<td class=\"highlight-green\">10.00<\/td>\r\n<td>10<\/td>\r\n<td>100.00<\/td>\r\n<td class=\"highlight-green\">2<\/td>\r\n<td>20.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Slugger<\/td>\r\n<td>purchased 11\/15\/20XX<\/td>\r\n<td class=\"highlight-red\">12.00<\/td>\r\n<td>25<\/td>\r\n<td>300.00<\/td>\r\n<td class=\"highlight-red\">6<\/td>\r\n<td>72.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Slugger<\/td>\r\n<td>purchased 12\/15\/20XX<\/td>\r\n<td class=\"highlight-blue\">15.00<\/td>\r\n<td>8<\/td>\r\n<td>120.00<\/td>\r\n<td class=\"highlight-blue\">4<\/td>\r\n<td>60.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<th colspan=\"4\" scope=\"row\">Total Inventory Value<\/th>\r\n<td>$ 520.00<\/td>\r\n<td><\/td>\r\n<td>$ 152.00<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\nBecause we identified the exact cost of each bat, we can calculate the cost of ending inventory precisely. Two green bats at $10 each, plus six red bats at $12 each, and four blue bats at $15 each makes the total cost of ending inventory equal $152 using the historical cost principle and the specific identification cost-flow method.\r\n\r\nAssume each bat sold for $20. We had 43 bats. There are 12 left, so we sold 31 bats at $20 each for total sales of $620. We\u2019ll assume no discounts, no returns or allowances, and no freight in. Here is our calculation of gross profit on bats:\r\n<table class=\"fin-table acctstatement\"><caption>NewCo Sporting Goods\r\nGross Profit Calculation\r\nSpecific Identification method<\/caption>\r\n<thead>\r\n<tr class=\"u-sr-only\">\r\n<th scope=\"col\">Description<\/th>\r\n<th scope=\"col\">Amount<\/th>\r\n<th scope=\"col\">Total<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr aria-hidden=\"true\">\r\n<td colspan=\"3\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Gross sales<\/td>\r\n<td><\/td>\r\n<td>$ 620.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Beginning inventory<\/td>\r\n<td class=\"r\">$-<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Purchases<\/td>\r\n<td>$520.00<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Less ending inventory<\/td>\r\n<td>152.00<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0 \u00a0 \u00a0 Costs of goods sold<\/td>\r\n<td><\/td>\r\n<td>$368.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Gross profit<\/td>\r\n<td><\/td>\r\n<td class=\"line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$252.00<span class=\"u-sr-only\">Double Line<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Gross profit %<\/td>\r\n<td><\/td>\r\n<td>40.64%<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n&nbsp;\r\n\r\nAnother way to look at this is we sold 8 of the $10 bats, 19 of the $12 bats, and 4 of the $15 bats. What is the total cost of bats sold? $80 + $228 + $60 = $368.\r\n<div align=\"left\">\r\n<table class=\"fin-table gridded\"><caption>Inventory List<\/caption>\r\n<tbody>\r\n<tr>\r\n<td style=\"text-align: left;\" colspan=\"7\"><strong>NewCo Sporting Goods<\/strong><\/td>\r\n<\/tr>\r\n<tr>\r\n<td style=\"text-align: right;\" colspan=\"7\"><strong>12\/31\/20XX<\/strong><\/td>\r\n<\/tr>\r\n<tr aria-hidden=\"true\">\r\n<td colspan=\"7\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<th scope=\"col\">Product ID<\/th>\r\n<th scope=\"col\">Description<\/th>\r\n<th scope=\"col\">Cost<\/th>\r\n<th scope=\"col\">Quantity<\/th>\r\n<th scope=\"col\">Total Purchases<\/th>\r\n<th colspan=\"2\" scope=\"col\">Cost of Goods Sold<\/th>\r\n<\/tr>\r\n<tr>\r\n<td>Slugger<\/td>\r\n<td>purchased 10\/15\/20XX<\/td>\r\n<td class=\"highlight-green\">10.00<\/td>\r\n<td>10<\/td>\r\n<td>100.00<\/td>\r\n<td>8<\/td>\r\n<td>80.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Slugger<\/td>\r\n<td>purchased 11\/15\/20XX<\/td>\r\n<td class=\"highlight-red\">12.00<\/td>\r\n<td>25<\/td>\r\n<td>300.00<\/td>\r\n<td>19<\/td>\r\n<td>228.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Slugger<\/td>\r\n<td>purchased 12\/15\/20XX<\/td>\r\n<td class=\"highlight-blue\">15.00<\/td>\r\n<td>8<\/td>\r\n<td>120.00<\/td>\r\n<td>4<\/td>\r\n<td>60.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<th colspan=\"4\" scope=\"row\">Total Inventory Value<\/th>\r\n<td>$ 520.00<\/td>\r\n<td><\/td>\r\n<td>$ 368.00<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n<h2>2. Weighted Average<\/h2>\r\nA \u201cstraight\u201d or unweighted average would be ($10 + $12 + $15) \/ 3 = $12.33, which actually gives each price equal weight. However, we bought a lot more bats at $12 than at the other price points, so we should give those bats more weight. We do that by multiplying the price (our cost) by the units, which we have already done in the table above to get Total Purchases. Divide that number by total units, and we get the weighted average cost:\r\n\r\n$520.00 \/ 43 units = $12.09.\r\n\r\nNot a radical difference in this case, but for a bigger business, the effect of using the wrong calculation would be magnified.\r\n\r\nThere are 12 units in ending inventory at an average cost of $12.09 for a total ending inventory cost of $145.12.\r\n<table class=\"fin-table acctstatement\"><caption>NewCo Sporting Goods\r\nGross Profit Calculation\r\nWeighted Average Method<\/caption>\r\n<thead>\r\n<tr class=\"u-sr-only\">\r\n<th scope=\"col\">Description<\/th>\r\n<th scope=\"col\">Amount<\/th>\r\n<th scope=\"col\">Total<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td colspan=\"3\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Gross sales<\/td>\r\n<td><\/td>\r\n<td>$ 620.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Beginning inventory<\/td>\r\n<td class=\"r\">$-<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Purchases<\/td>\r\n<td>$520.00<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Less ending inventory<\/td>\r\n<td>$145.12<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0 \u00a0 \u00a0 Costs of goods sold<\/td>\r\n<td><\/td>\r\n<td>$374.88<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Gross profit<\/td>\r\n<td><\/td>\r\n<td class=\"line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$245.12<span class=\"u-sr-only\">Double Line<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Gross profit %<\/td>\r\n<td><\/td>\r\n<td>39.54%<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<h2>3. First-in, First-out (FIFO)<\/h2>\r\nFirst-in, First-out (FIFO) could also be called \u201clast in still here.\u201d The first purchases we made are assumed to be the first items sold, so the most recent purchases are the ones left in ending inventory. In this case, we would assume that the 12 bats left in our store at the end of the year were the eight we bought on the 15th of December and four of the bats we bought on the 15th of November.\r\n<div align=\"left\">\r\n<table class=\"fin-table gridded\"><caption>Inventory List<\/caption>\r\n<tbody>\r\n<tr>\r\n<td style=\"text-align: left;\" colspan=\"7\"><strong>NewCo Sporting Goods<\/strong><\/td>\r\n<\/tr>\r\n<tr>\r\n<td style=\"text-align: right;\" colspan=\"7\"><strong>12\/31\/20XX<\/strong><\/td>\r\n<\/tr>\r\n<tr aria-hidden=\"true\">\r\n<td colspan=\"7\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<th scope=\"col\">Product ID<\/th>\r\n<th scope=\"col\">Description<\/th>\r\n<th scope=\"col\">Cost<\/th>\r\n<th scope=\"col\">Quantity<\/th>\r\n<th scope=\"col\">Purchases<\/th>\r\n<th colspan=\"2\" scope=\"col\">Ending Inventory<\/th>\r\n<\/tr>\r\n<tr>\r\n<td>Slugger<\/td>\r\n<td>purchased 10\/15\/20XX<\/td>\r\n<td class=\"highlight-green\">10.00<\/td>\r\n<td>10<\/td>\r\n<td>100.00<\/td>\r\n<td>-<\/td>\r\n<td>-<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Slugger<\/td>\r\n<td>purchased 11\/15\/20XX<\/td>\r\n<td class=\"highlight-red\">12.00<\/td>\r\n<td>25<\/td>\r\n<td>300.00<\/td>\r\n<td>4<\/td>\r\n<td>48.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Slugger<\/td>\r\n<td>purchased 12\/15\/20XX<\/td>\r\n<td class=\"highlight-blue\">15.00<\/td>\r\n<td>8<\/td>\r\n<td>120.00<\/td>\r\n<td>8<\/td>\r\n<td>120.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<th colspan=\"3\" scope=\"row\">Total Inventory Value<\/th>\r\n<td>$ 520.00<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td>$ 168.00<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n&nbsp;\r\n<table class=\"fin-table acctstatement\"><caption>NewCo Sporting Goods\r\nGross Profit Calculation\r\nFIFO<\/caption>\r\n<thead>\r\n<tr class=\"u-sr-only\">\r\n<th scope=\"col\">Description<\/th>\r\n<th scope=\"col\">Amount<\/th>\r\n<th scope=\"col\">Total<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td colspan=\"3\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Gross sales<\/td>\r\n<td><\/td>\r\n<td>$ 620.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Beginning inventory<\/td>\r\n<td class=\"r\">$-<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Purchases<\/td>\r\n<td>$520.00<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Less ending inventory<\/td>\r\n<td>$168.00<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0 \u00a0 \u00a0 Costs of goods sold<\/td>\r\n<td><\/td>\r\n<td>$352.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Gross profit<\/td>\r\n<td><\/td>\r\n<td class=\"line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$268.00<span class=\"u-sr-only\">Double Line<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Gross profit %<\/td>\r\n<td><\/td>\r\n<td>43.23%<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<h2>4. Last-in, First-out (LIFO)<\/h2>\r\nLast-in, First-out (LIFO) is the exact opposite of FIFO. We assume that the first items we sell come from the most recent purchases. Another way to think of this, in terms of the costs assigned to ending inventory, is \u201cfirst in still here\u201d This system creates an interesting and sometimes perplexing problem called \u201cLIFO layers\u201d that we will discuss later. For now, here is the same information we\u2019ve been examining, this time using the LIFO cost flow assumption:\r\n<div align=\"left\">\r\n<table class=\"fin-table gridded\"><caption>Inventory List<\/caption>\r\n<tbody>\r\n<tr>\r\n<td style=\"text-align: left;\" colspan=\"7\"><strong>NewCo Sporting Goods<\/strong><\/td>\r\n<\/tr>\r\n<tr>\r\n<td style=\"text-align: right;\" colspan=\"7\"><strong>12\/31\/20XX<\/strong><\/td>\r\n<\/tr>\r\n<tr aria-hidden=\"true\">\r\n<td colspan=\"7\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<th scope=\"col\">Product ID<\/th>\r\n<th scope=\"col\">Description<\/th>\r\n<th scope=\"col\">Cost<\/th>\r\n<th scope=\"col\">Quantity<\/th>\r\n<th scope=\"col\">Purchases<\/th>\r\n<th colspan=\"2\" scope=\"col\">Ending Inventory<\/th>\r\n<\/tr>\r\n<tr>\r\n<td>Slugger<\/td>\r\n<td>purchased 10\/15\/20XX<\/td>\r\n<td class=\"highlight-green\">10.00<\/td>\r\n<td>10<\/td>\r\n<td>100.00<\/td>\r\n<td>10<\/td>\r\n<td>100.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Slugger<\/td>\r\n<td>purchased 11\/15\/20XX<\/td>\r\n<td class=\"highlight-red\">12.00<\/td>\r\n<td>25<\/td>\r\n<td>300.00<\/td>\r\n<td>2<\/td>\r\n<td>24.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Slugger<\/td>\r\n<td>purchased 12\/15\/20XX<\/td>\r\n<td class=\"highlight-blue\">15.00<\/td>\r\n<td>8<\/td>\r\n<td>120.00<\/td>\r\n<td>-<\/td>\r\n<td>-<\/td>\r\n<\/tr>\r\n<tr>\r\n<th colspan=\"4\" scope=\"row\">Total Inventory Value<\/th>\r\n<td>$ 520.00<\/td>\r\n<td><\/td>\r\n<td>$ 124.00<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n&nbsp;\r\n<table class=\"fin-table acctstatement\"><caption>NewCo Sporting Goods\r\nGross Profit Calculation\r\nLIFO<\/caption>\r\n<thead>\r\n<tr class=\"u-sr-only\">\r\n<th scope=\"col\">Description<\/th>\r\n<th scope=\"col\">Amount<\/th>\r\n<th scope=\"col\">Total<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td colspan=\"3\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Gross sales<\/td>\r\n<td><\/td>\r\n<td>$ 620.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Beginning inventory<\/td>\r\n<td class=\"r\">$-<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Purchases<\/td>\r\n<td>$520.00<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Less ending inventory<\/td>\r\n<td>$124.00<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0 \u00a0 \u00a0 Costs of goods sold<\/td>\r\n<td><\/td>\r\n<td>$396.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Gross profit<\/td>\r\n<td><\/td>\r\n<td class=\"line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$224.00<span class=\"u-sr-only\">Double Line<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Gross profit %<\/td>\r\n<td><\/td>\r\n<td>36.13%<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nLet\u2019s look at all four methods, side by side:\r\n<table class=\"fin-table acctstatement\"><caption>NewCo Sporting Goods\r\nGross Profit Calculation<\/caption>\r\n<thead>\r\n<tr>\r\n<td><\/td>\r\n<th scope=\"col\">SpecID<\/th>\r\n<th scope=\"col\">WAVE<\/th>\r\n<th scope=\"col\">FIFO<\/th>\r\n<th scope=\"col\">LIFO<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td colspan=\"3\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Gross sales<\/td>\r\n<td class=\"r\">$ 620.00<\/td>\r\n<td class=\"r\">$ 620.00<\/td>\r\n<td class=\"r\">$ 620.00<\/td>\r\n<td class=\"r\">$ 620.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Cost of Goods Sold<\/td>\r\n<td class=\"r\">368.00<\/td>\r\n<td class=\"r\">374.88<\/td>\r\n<td class=\"r\">352.00<\/td>\r\n<td class=\"r\">396.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Gross profit<\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$252.00<span class=\"u-sr-only\">Double Line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$245.12<span class=\"u-sr-only\">Double Line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$268.00<span class=\"u-sr-only\">Double Line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$224.00<span class=\"u-sr-only\">Double Line<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Gross profit %<\/td>\r\n<td class=\"r\">40.65%<\/td>\r\n<td class=\"r\">39.54%<\/td>\r\n<td class=\"r\">43.23%<\/td>\r\n<td class=\"r\">36.13%<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nWhich method would make investors and lenders happiest? Which method would result in the lowest taxes? Which method makes the most sense for this business, and why?\r\n\r\nHow would you apply any of these methods to a perpetual inventory system?\r\n\r\nLet\u2019s find out.","rendered":"<div class=\"textbox learning-objectives\">\n<h3>Learning Outcomes<\/h3>\n<ul>\n<li>Illustrate the use of specific identification cost flow assumption<\/li>\n<li>Illustrate the use of weighted average cost flow assumption<\/li>\n<li>Illustrate the use of First-in, First-out (FIFO) cost flow assumption<\/li>\n<li>Illustrate the use of Last-in, First-out (LIFO) cost flow assumption<\/li>\n<\/ul>\n<\/div>\n<p>Here is an overview of the cost flow assumptions:<\/p>\n<p><iframe loading=\"lazy\" id=\"oembed-1\" title=\"Inventory Cost Flow Assumptions\" width=\"500\" height=\"281\" src=\"https:\/\/www.youtube.com\/embed\/GUKrEoHIEH8?feature=oembed&#38;rel=0\" frameborder=\"0\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<p>In order to put this principle in context, let\u2019s take a simple example and apply each of the four examples in turn. We\u2019ll assume that NewCo Sporting Goods has decided to start selling baseball bats in October, starting with a model called the Slugger, and that the company made three purchases, listed in the table below. Notice that the cost of each bat is different for each purchase.<\/p>\n<table class=\"fin-table gridded\">\n<caption>Purchases<\/caption>\n<tbody>\n<tr>\n<td style=\"text-align: left;\" colspan=\"5\"><strong>NewCo Sporting Goods<\/strong><\/td>\n<\/tr>\n<tr>\n<td style=\"text-align: right;\" colspan=\"5\"><strong>12\/31\/20XX<\/strong><\/td>\n<\/tr>\n<tr aria-hidden=\"true\">\n<td colspan=\"5\"><\/td>\n<\/tr>\n<tr>\n<th scope=\"col\">Product ID<\/th>\n<th scope=\"col\">Description<\/th>\n<th scope=\"col\">Cost<\/th>\n<th scope=\"col\">Quantity<\/th>\n<th scope=\"col\">Purchases<\/th>\n<\/tr>\n<tr>\n<td>Slugger<\/td>\n<td>purchased 10\/15\/20XX<\/td>\n<td>10.00<\/td>\n<td>10<\/td>\n<td>100.00<\/td>\n<\/tr>\n<tr>\n<td>Slugger<\/td>\n<td>purchased 11\/15\/20XX<\/td>\n<td>12.00<\/td>\n<td>25<\/td>\n<td>300.00<\/td>\n<\/tr>\n<tr>\n<td>Slugger<\/td>\n<td>purchased 12\/15\/20XX<\/td>\n<td>15.00<\/td>\n<td>8<\/td>\n<td>120.00<\/td>\n<\/tr>\n<tr>\n<th colspan=\"4\" scope=\"row\">Total Inventory Value<\/th>\n<td>$ 520.00<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>Say at the end of the year you have 12 bats left in stock, according to your physical count, and that for simplicity&#8217;s sake, you have decided to use the periodic method of accounting for inventory, where you wait until the end of the year to compute COGS. You have the following information:<\/p>\n<ul>\n<li style=\"font-weight: 400;\">Beginning inventory was zero because this is your first year in business.<\/li>\n<li style=\"font-weight: 400;\">You purchased three different \u201clots\u201d of baseball bats, 43 in total, with a total cost of $520.<\/li>\n<li style=\"font-weight: 400;\">There are 12 bats in ending inventory.<\/li>\n<\/ul>\n<p>What cost do you assign to those 12 bats? The answer is, it depends on the cost flow assumption used.<\/p>\n<p>Let\u2019s take a quick look at each cost flow assumption using the periodic method, and then we\u2019ll apply what we have learned to the perpetual method.<\/p>\n<h2>1. Specific Identification<\/h2>\n<p>Technically, the specific identification method of assigning costs to items in inventory isn\u2019t an assumption because it is a direct assignment of the cost of the item purchased to the item. Assume that when each bat came in, we put a sticker on it. Green for the $10 bats, red for the $12 bats, and blue for the $15 bats. We look at the 12 bats in ending inventory and specifically identify which ones are left. We find two green bats, six red bats, and four blue bats.<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table gridded\">\n<caption>Inventory List<\/caption>\n<tbody>\n<tr>\n<td style=\"text-align: left;\" colspan=\"7\"><strong>NewCo Sporting Goods<\/strong><\/td>\n<\/tr>\n<tr>\n<td style=\"text-align: right;\" colspan=\"7\"><strong>12\/31\/20XX<\/strong><\/td>\n<\/tr>\n<tr aria-hidden=\"true\">\n<td colspan=\"7\"><\/td>\n<\/tr>\n<tr>\n<th scope=\"col\">Product ID<\/th>\n<th scope=\"col\">Description<\/th>\n<th scope=\"col\">Cost<\/th>\n<th scope=\"col\">Quantity<\/th>\n<th scope=\"col\">Total Purchases<\/th>\n<th colspan=\"2\" scope=\"col\">Ending Inventory<\/th>\n<\/tr>\n<tr>\n<td>Slugger<\/td>\n<td>purchased 10\/15\/20XX<\/td>\n<td class=\"highlight-green\">10.00<\/td>\n<td>10<\/td>\n<td>100.00<\/td>\n<td class=\"highlight-green\">2<\/td>\n<td>20.00<\/td>\n<\/tr>\n<tr>\n<td>Slugger<\/td>\n<td>purchased 11\/15\/20XX<\/td>\n<td class=\"highlight-red\">12.00<\/td>\n<td>25<\/td>\n<td>300.00<\/td>\n<td class=\"highlight-red\">6<\/td>\n<td>72.00<\/td>\n<\/tr>\n<tr>\n<td>Slugger<\/td>\n<td>purchased 12\/15\/20XX<\/td>\n<td class=\"highlight-blue\">15.00<\/td>\n<td>8<\/td>\n<td>120.00<\/td>\n<td class=\"highlight-blue\">4<\/td>\n<td>60.00<\/td>\n<\/tr>\n<tr>\n<th colspan=\"4\" scope=\"row\">Total Inventory Value<\/th>\n<td>$ 520.00<\/td>\n<td><\/td>\n<td>$ 152.00<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>Because we identified the exact cost of each bat, we can calculate the cost of ending inventory precisely. Two green bats at $10 each, plus six red bats at $12 each, and four blue bats at $15 each makes the total cost of ending inventory equal $152 using the historical cost principle and the specific identification cost-flow method.<\/p>\n<p>Assume each bat sold for $20. We had 43 bats. There are 12 left, so we sold 31 bats at $20 each for total sales of $620. We\u2019ll assume no discounts, no returns or allowances, and no freight in. Here is our calculation of gross profit on bats:<\/p>\n<table class=\"fin-table acctstatement\">\n<caption>NewCo Sporting Goods<br \/>\nGross Profit Calculation<br \/>\nSpecific Identification method<\/caption>\n<thead>\n<tr class=\"u-sr-only\">\n<th scope=\"col\">Description<\/th>\n<th scope=\"col\">Amount<\/th>\n<th scope=\"col\">Total<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr aria-hidden=\"true\">\n<td colspan=\"3\"><\/td>\n<\/tr>\n<tr>\n<td>Gross sales<\/td>\n<td><\/td>\n<td>$ 620.00<\/td>\n<\/tr>\n<tr>\n<td>Beginning inventory<\/td>\n<td class=\"r\">$-<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>Purchases<\/td>\n<td>$520.00<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>Less ending inventory<\/td>\n<td>152.00<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>\u00a0 \u00a0 \u00a0 Costs of goods sold<\/td>\n<td><\/td>\n<td>$368.00<\/td>\n<\/tr>\n<tr>\n<td>Gross profit<\/td>\n<td><\/td>\n<td class=\"line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$252.00<span class=\"u-sr-only\">Double Line<\/span><\/td>\n<\/tr>\n<tr>\n<td>Gross profit %<\/td>\n<td><\/td>\n<td>40.64%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>&nbsp;<\/p>\n<p>Another way to look at this is we sold 8 of the $10 bats, 19 of the $12 bats, and 4 of the $15 bats. What is the total cost of bats sold? $80 + $228 + $60 = $368.<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table gridded\">\n<caption>Inventory List<\/caption>\n<tbody>\n<tr>\n<td style=\"text-align: left;\" colspan=\"7\"><strong>NewCo Sporting Goods<\/strong><\/td>\n<\/tr>\n<tr>\n<td style=\"text-align: right;\" colspan=\"7\"><strong>12\/31\/20XX<\/strong><\/td>\n<\/tr>\n<tr aria-hidden=\"true\">\n<td colspan=\"7\"><\/td>\n<\/tr>\n<tr>\n<th scope=\"col\">Product ID<\/th>\n<th scope=\"col\">Description<\/th>\n<th scope=\"col\">Cost<\/th>\n<th scope=\"col\">Quantity<\/th>\n<th scope=\"col\">Total Purchases<\/th>\n<th colspan=\"2\" scope=\"col\">Cost of Goods Sold<\/th>\n<\/tr>\n<tr>\n<td>Slugger<\/td>\n<td>purchased 10\/15\/20XX<\/td>\n<td class=\"highlight-green\">10.00<\/td>\n<td>10<\/td>\n<td>100.00<\/td>\n<td>8<\/td>\n<td>80.00<\/td>\n<\/tr>\n<tr>\n<td>Slugger<\/td>\n<td>purchased 11\/15\/20XX<\/td>\n<td class=\"highlight-red\">12.00<\/td>\n<td>25<\/td>\n<td>300.00<\/td>\n<td>19<\/td>\n<td>228.00<\/td>\n<\/tr>\n<tr>\n<td>Slugger<\/td>\n<td>purchased 12\/15\/20XX<\/td>\n<td class=\"highlight-blue\">15.00<\/td>\n<td>8<\/td>\n<td>120.00<\/td>\n<td>4<\/td>\n<td>60.00<\/td>\n<\/tr>\n<tr>\n<th colspan=\"4\" scope=\"row\">Total Inventory Value<\/th>\n<td>$ 520.00<\/td>\n<td><\/td>\n<td>$ 368.00<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<h2>2. Weighted Average<\/h2>\n<p>A \u201cstraight\u201d or unweighted average would be ($10 + $12 + $15) \/ 3 = $12.33, which actually gives each price equal weight. However, we bought a lot more bats at $12 than at the other price points, so we should give those bats more weight. We do that by multiplying the price (our cost) by the units, which we have already done in the table above to get Total Purchases. Divide that number by total units, and we get the weighted average cost:<\/p>\n<p>$520.00 \/ 43 units = $12.09.<\/p>\n<p>Not a radical difference in this case, but for a bigger business, the effect of using the wrong calculation would be magnified.<\/p>\n<p>There are 12 units in ending inventory at an average cost of $12.09 for a total ending inventory cost of $145.12.<\/p>\n<table class=\"fin-table acctstatement\">\n<caption>NewCo Sporting Goods<br \/>\nGross Profit Calculation<br \/>\nWeighted Average Method<\/caption>\n<thead>\n<tr class=\"u-sr-only\">\n<th scope=\"col\">Description<\/th>\n<th scope=\"col\">Amount<\/th>\n<th scope=\"col\">Total<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td colspan=\"3\"><\/td>\n<\/tr>\n<tr>\n<td>Gross sales<\/td>\n<td><\/td>\n<td>$ 620.00<\/td>\n<\/tr>\n<tr>\n<td>Beginning inventory<\/td>\n<td class=\"r\">$-<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>Purchases<\/td>\n<td>$520.00<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>Less ending inventory<\/td>\n<td>$145.12<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>\u00a0 \u00a0 \u00a0 Costs of goods sold<\/td>\n<td><\/td>\n<td>$374.88<\/td>\n<\/tr>\n<tr>\n<td>Gross profit<\/td>\n<td><\/td>\n<td class=\"line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$245.12<span class=\"u-sr-only\">Double Line<\/span><\/td>\n<\/tr>\n<tr>\n<td>Gross profit %<\/td>\n<td><\/td>\n<td>39.54%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<h2>3. First-in, First-out (FIFO)<\/h2>\n<p>First-in, First-out (FIFO) could also be called \u201clast in still here.\u201d The first purchases we made are assumed to be the first items sold, so the most recent purchases are the ones left in ending inventory. In this case, we would assume that the 12 bats left in our store at the end of the year were the eight we bought on the 15th of December and four of the bats we bought on the 15th of November.<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table gridded\">\n<caption>Inventory List<\/caption>\n<tbody>\n<tr>\n<td style=\"text-align: left;\" colspan=\"7\"><strong>NewCo Sporting Goods<\/strong><\/td>\n<\/tr>\n<tr>\n<td style=\"text-align: right;\" colspan=\"7\"><strong>12\/31\/20XX<\/strong><\/td>\n<\/tr>\n<tr aria-hidden=\"true\">\n<td colspan=\"7\"><\/td>\n<\/tr>\n<tr>\n<th scope=\"col\">Product ID<\/th>\n<th scope=\"col\">Description<\/th>\n<th scope=\"col\">Cost<\/th>\n<th scope=\"col\">Quantity<\/th>\n<th scope=\"col\">Purchases<\/th>\n<th colspan=\"2\" scope=\"col\">Ending Inventory<\/th>\n<\/tr>\n<tr>\n<td>Slugger<\/td>\n<td>purchased 10\/15\/20XX<\/td>\n<td class=\"highlight-green\">10.00<\/td>\n<td>10<\/td>\n<td>100.00<\/td>\n<td>&#8211;<\/td>\n<td>&#8211;<\/td>\n<\/tr>\n<tr>\n<td>Slugger<\/td>\n<td>purchased 11\/15\/20XX<\/td>\n<td class=\"highlight-red\">12.00<\/td>\n<td>25<\/td>\n<td>300.00<\/td>\n<td>4<\/td>\n<td>48.00<\/td>\n<\/tr>\n<tr>\n<td>Slugger<\/td>\n<td>purchased 12\/15\/20XX<\/td>\n<td class=\"highlight-blue\">15.00<\/td>\n<td>8<\/td>\n<td>120.00<\/td>\n<td>8<\/td>\n<td>120.00<\/td>\n<\/tr>\n<tr>\n<th colspan=\"3\" scope=\"row\">Total Inventory Value<\/th>\n<td>$ 520.00<\/td>\n<td><\/td>\n<td><\/td>\n<td>$ 168.00<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>&nbsp;<\/p>\n<table class=\"fin-table acctstatement\">\n<caption>NewCo Sporting Goods<br \/>\nGross Profit Calculation<br \/>\nFIFO<\/caption>\n<thead>\n<tr class=\"u-sr-only\">\n<th scope=\"col\">Description<\/th>\n<th scope=\"col\">Amount<\/th>\n<th scope=\"col\">Total<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td colspan=\"3\"><\/td>\n<\/tr>\n<tr>\n<td>Gross sales<\/td>\n<td><\/td>\n<td>$ 620.00<\/td>\n<\/tr>\n<tr>\n<td>Beginning inventory<\/td>\n<td class=\"r\">$-<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>Purchases<\/td>\n<td>$520.00<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>Less ending inventory<\/td>\n<td>$168.00<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>\u00a0 \u00a0 \u00a0 Costs of goods sold<\/td>\n<td><\/td>\n<td>$352.00<\/td>\n<\/tr>\n<tr>\n<td>Gross profit<\/td>\n<td><\/td>\n<td class=\"line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$268.00<span class=\"u-sr-only\">Double Line<\/span><\/td>\n<\/tr>\n<tr>\n<td>Gross profit %<\/td>\n<td><\/td>\n<td>43.23%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<h2>4. Last-in, First-out (LIFO)<\/h2>\n<p>Last-in, First-out (LIFO) is the exact opposite of FIFO. We assume that the first items we sell come from the most recent purchases. Another way to think of this, in terms of the costs assigned to ending inventory, is \u201cfirst in still here\u201d This system creates an interesting and sometimes perplexing problem called \u201cLIFO layers\u201d that we will discuss later. For now, here is the same information we\u2019ve been examining, this time using the LIFO cost flow assumption:<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table gridded\">\n<caption>Inventory List<\/caption>\n<tbody>\n<tr>\n<td style=\"text-align: left;\" colspan=\"7\"><strong>NewCo Sporting Goods<\/strong><\/td>\n<\/tr>\n<tr>\n<td style=\"text-align: right;\" colspan=\"7\"><strong>12\/31\/20XX<\/strong><\/td>\n<\/tr>\n<tr aria-hidden=\"true\">\n<td colspan=\"7\"><\/td>\n<\/tr>\n<tr>\n<th scope=\"col\">Product ID<\/th>\n<th scope=\"col\">Description<\/th>\n<th scope=\"col\">Cost<\/th>\n<th scope=\"col\">Quantity<\/th>\n<th scope=\"col\">Purchases<\/th>\n<th colspan=\"2\" scope=\"col\">Ending Inventory<\/th>\n<\/tr>\n<tr>\n<td>Slugger<\/td>\n<td>purchased 10\/15\/20XX<\/td>\n<td class=\"highlight-green\">10.00<\/td>\n<td>10<\/td>\n<td>100.00<\/td>\n<td>10<\/td>\n<td>100.00<\/td>\n<\/tr>\n<tr>\n<td>Slugger<\/td>\n<td>purchased 11\/15\/20XX<\/td>\n<td class=\"highlight-red\">12.00<\/td>\n<td>25<\/td>\n<td>300.00<\/td>\n<td>2<\/td>\n<td>24.00<\/td>\n<\/tr>\n<tr>\n<td>Slugger<\/td>\n<td>purchased 12\/15\/20XX<\/td>\n<td class=\"highlight-blue\">15.00<\/td>\n<td>8<\/td>\n<td>120.00<\/td>\n<td>&#8211;<\/td>\n<td>&#8211;<\/td>\n<\/tr>\n<tr>\n<th colspan=\"4\" scope=\"row\">Total Inventory Value<\/th>\n<td>$ 520.00<\/td>\n<td><\/td>\n<td>$ 124.00<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>&nbsp;<\/p>\n<table class=\"fin-table acctstatement\">\n<caption>NewCo Sporting Goods<br \/>\nGross Profit Calculation<br \/>\nLIFO<\/caption>\n<thead>\n<tr class=\"u-sr-only\">\n<th scope=\"col\">Description<\/th>\n<th scope=\"col\">Amount<\/th>\n<th scope=\"col\">Total<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td colspan=\"3\"><\/td>\n<\/tr>\n<tr>\n<td>Gross sales<\/td>\n<td><\/td>\n<td>$ 620.00<\/td>\n<\/tr>\n<tr>\n<td>Beginning inventory<\/td>\n<td class=\"r\">$-<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>Purchases<\/td>\n<td>$520.00<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>Less ending inventory<\/td>\n<td>$124.00<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>\u00a0 \u00a0 \u00a0 Costs of goods sold<\/td>\n<td><\/td>\n<td>$396.00<\/td>\n<\/tr>\n<tr>\n<td>Gross profit<\/td>\n<td><\/td>\n<td class=\"line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$224.00<span class=\"u-sr-only\">Double Line<\/span><\/td>\n<\/tr>\n<tr>\n<td>Gross profit %<\/td>\n<td><\/td>\n<td>36.13%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>Let\u2019s look at all four methods, side by side:<\/p>\n<table class=\"fin-table acctstatement\">\n<caption>NewCo Sporting Goods<br \/>\nGross Profit Calculation<\/caption>\n<thead>\n<tr>\n<td><\/td>\n<th scope=\"col\">SpecID<\/th>\n<th scope=\"col\">WAVE<\/th>\n<th scope=\"col\">FIFO<\/th>\n<th scope=\"col\">LIFO<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td colspan=\"3\"><\/td>\n<\/tr>\n<tr>\n<td>Gross sales<\/td>\n<td class=\"r\">$ 620.00<\/td>\n<td class=\"r\">$ 620.00<\/td>\n<td class=\"r\">$ 620.00<\/td>\n<td class=\"r\">$ 620.00<\/td>\n<\/tr>\n<tr>\n<td>Cost of Goods Sold<\/td>\n<td class=\"r\">368.00<\/td>\n<td class=\"r\">374.88<\/td>\n<td class=\"r\">352.00<\/td>\n<td class=\"r\">396.00<\/td>\n<\/tr>\n<tr>\n<td>Gross profit<\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$252.00<span class=\"u-sr-only\">Double Line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$245.12<span class=\"u-sr-only\">Double Line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$268.00<span class=\"u-sr-only\">Double Line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$224.00<span class=\"u-sr-only\">Double Line<\/span><\/td>\n<\/tr>\n<tr>\n<td>Gross profit %<\/td>\n<td class=\"r\">40.65%<\/td>\n<td class=\"r\">39.54%<\/td>\n<td class=\"r\">43.23%<\/td>\n<td class=\"r\">36.13%<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>Which method would make investors and lenders happiest? Which method would result in the lowest taxes? Which method makes the most sense for this business, and why?<\/p>\n<p>How would you apply any of these methods to a perpetual inventory system?<\/p>\n<p>Let\u2019s find out.<\/p><\/div>\n<\/div>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-3601\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Original<\/div><ul class=\"citation-list\"><li>Inventory Cost Methods. <strong>Authored by<\/strong>: Joseph Cooke. <strong>Provided by<\/strong>: Lumen Learning. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><div class=\"license-attribution-dropdown-subheading\">All rights reserved content<\/div><ul class=\"citation-list\"><li>Inventory Cost Flow Assumptions. <strong>Authored by<\/strong>: Melissa Shirah. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/youtu.be\/GUKrEoHIEH8\">https:\/\/youtu.be\/GUKrEoHIEH8<\/a>. <strong>License<\/strong>: <em>All Rights Reserved<\/em>. <strong>License Terms<\/strong>: Standard YouTube License<\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section>","protected":false},"author":17,"menu_order":3,"template":"","meta":{"_candela_citation":"[{\"type\":\"original\",\"description\":\"Inventory Cost Methods\",\"author\":\"Joseph Cooke\",\"organization\":\"Lumen Learning\",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"},{\"type\":\"copyrighted_video\",\"description\":\"Inventory Cost Flow Assumptions\",\"author\":\"Melissa Shirah\",\"organization\":\"\",\"url\":\"https:\/\/youtu.be\/GUKrEoHIEH8\",\"project\":\"\",\"license\":\"arr\",\"license_terms\":\"Standard YouTube License\"}]","CANDELA_OUTCOMES_GUID":"2ecb4f83-4303-430c-b407-e7de5561bcf1, 8fcba4a4-a372-485c-b230-48f676e07993, de564907-6fdd-4d4d-9dc6-35542f1ac89a, 12208536-ba06-46a2-aaf4-110741b16c51, a6bfbe65-b8dd-4c52-9799-fa959a11a5a6","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-3601","chapter","type-chapter","status-publish","hentry"],"part":102,"_links":{"self":[{"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/3601","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/wp-json\/wp\/v2\/users\/17"}],"version-history":[{"count":15,"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/3601\/revisions"}],"predecessor-version":[{"id":5904,"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/3601\/revisions\/5904"}],"part":[{"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/wp-json\/pressbooks\/v2\/parts\/102"}],"metadata":[{"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/3601\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/wp-json\/wp\/v2\/media?parent=3601"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/wp-json\/pressbooks\/v2\/chapter-type?post=3601"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/wp-json\/wp\/v2\/contributor?post=3601"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/wp-json\/wp\/v2\/license?post=3601"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}