Periodic Inventory Valuation Methods

Chart 1 Inventory-listing chart in the order items were purchased during the year. Purchase Dates Beginning inventory (oldest material) First purchase of the year Second purchase Third purchase Fourth purchase (Newest Material) Units Available for sale and Goods Available for Sale (Total of all purchases plus beginning inventory) Less: Units Sold Units in ending inventory Number of units
20 40 30 20 30 140 80 60

Cost per unit

7 8 9 10 11 X

Total extended cost

140 320 270 200 330 $1,260

How to Create Chart 1- the Inventory-Listing Chart 1. Create the chart of items, which will display in order from oldest to newest the beginning inventory and all of the items in inventory that were purchased during the year. Start with the beginning inventory, which is any item(s) left in stock at the end of the prior year. Then list in order of purchase date items of inventory purchased during the year. You will start the chart with the four columns which will be labeled as follows: (b) Number of units (c) Cost per unit (d) Total extended cost (b) X (c) = (d)

(a) Purchase Dates

2. Fill in the information of how many purchases, the number of units per purchase, the cost per unit for each purchase. Multiply across the number of units times the cost per unit to get the total extended cost. 3. Total down the columns for number of units and total extended cost. This will give you total units and goods available for sale. There is no need to total column (c) Cost per unit because it provides no useful information. 4. Subtract the total units sold for the total units available for sell in column (b) Number of units to get the number of units in ending inventory.
*Note: This chart is used in calculating the cost of ending inventory and cost of goods sold under all threeinventory valuation methods.

MJC Revised 12/2010

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Periodic Inventory Valuation Methods

FIFO Method
Chart 1-Use chart 1 from page 1. Chart 2 the calculation for the value of ending inventory:
Purchase Date Number of units Cost per unit Total Extended Cost

Forth purchase Third purchase Second purchase Total ending cost

30 20 10 60

11 10 9

330 200 90 $620

Chart 3 the calculation for the value of Cost of Goods Sold: Item Title Amount Goods Available for Sale 1,260 Less: Cost of Ending Inventory 620 Equals: Cost of Goods Sold $640 Chart 4 the calculation for the value of Cost of Goods sold using the check method. Item Title Number of units Cost per unit Total Extended Cost Beginning Inventory 20 7 140 First purchase 40 8 320 Second purchase 20 9 180 Cost of Goods Sold 80 X 640
*Note that the total cost in chart 4 is the same as the total cost in chart 3.

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Periodic Inventory Valuation Methods

FIFO Method How to create chart 2 the cost of ending inventory chart for FIFO 1. For FIFO you will need to use these headings for chart 2:
(a) (b) (c) (d) Purchase Date Number of units Cost per unit Total Extended Cost

2. FIFO starts from the bottom of the inventory-listing chart, which is chart 1. Use number of units column (b) and count up until you reach the number of units in the ending inventory. On chart one each row is designated by the date those units were purchased. The rows have the number of units that were purchased on that date in time, the unit price paid for those units along with the total extended cost for all the units purchased on that date. You will find that in counting units in chart 1 from the bottom up that the number of ending units for the last row to complete the total number of units in ending inventory may not be completely used up because some of those units were sold during the year and therefore are no longer in the ending inventory. For the last row used, you will need to multiply the number of units that are needed to complete the total ending inventory times the cost per unit to get the correct value for the row. 3. Once you have the units counted out then multiply out the unit by the unit cost in each row to get the total extended cost. 4. Now total the columns for number of units and total extended cost. These two columns will give you ending inventory in units and ending inventory cost. Never total the column for cost per unit down because it has no useful meaning or value. How to create chart 3 Cost of Goods Sold chart for FIFO 1. For FIFO you will need to use this chart: Item Title Amount Goods Available for Sale Less: Cost of Ending Inventory Equals: Cost of Goods Sold 2. Goods Available for Sale in dollar amounts comes from chart 1 - the inventory-listing chart. You will find that information at the bottom of the chart on the right hand side of your page.

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Periodic Inventory Valuation Methods

3. Next is Less Cost of Ending Inventory, which comes from chart 2 at the bottom of that chart. 4. Now subtract cost of ending inventory from goods available for sale to arrive at cost of goods sold. How to create chart 4 Cost of Goods Sold Chart Using the Check Method for FIFO 1. For FIFO you will need to use this chart: (a) (b) (c) (d) Item Title Number of units Cost per unit Total Extended Cost Beginning Inventory First purchase Second purchase Cost of Goods Sold X 2. For the check method, you start at the top of chart 1. List items down until you complete the number of units sold during the year. As in counting up for ending inventory their will most likely be units in the last row where some units were sold and some units are still in ending inventory. You will have to recalculate the total extended cost for that row with only the units you are using. 3. Next, recalculate out the total extended cost for each row to make sure that you have rechecked your calculations. Failure to do this recheck could lead to unwanted errors. 4. Finally total the columns down for number of units and total extended cost this will give you units sold and cost of goods sold. 5. Now check your total for chart 4 against the total in chart 3 if the totals match then you have a correct ending total for cost of goods sold.

MJC Revised 12/2010

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Periodic Inventory Valuation Methods

LIFO Method
Chart 1-Use chart 1 from page 1. Chart 2 the calculation for the value of ending inventory:
Purchase Date Number of units Cost per unit Total Extended Cost

Beginning Inventory First purchase Total ending cost

20 40 60

7 8 X

140 320 460

Chart 3 the calculation for the value of Cost of Goods Sold: Item Title Amount Goods Available for Sale 1,260 Less: Cost of Ending Inventory 460 Equals: Cost of Goods Sold $800 Chart 4 the calculation for the value of Cost of Goods sold using the check method. Item Title Number of units Cost per unit Total Extended Cost Fourth purchase 30 11 330 Third purchase 20 10 200 Second purchase 30 9 270 Cost of Goods Sold 80 X $800
*Note that the total cost in chart 4 is the same as the total cost in chart 3.

MJC Revised 12/2010

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Periodic Inventory Valuation Methods

LIFO Method How to create chart 2 The Cost of Ending Inventory Chart for LIFO 1. For LIFO you will need to use these headings for chart 2
(a) (b) (c) (d) Purchase Date Number of units Cost per unit Total Extended Cost

2. LIFO starts from the top of the inventory-listing chart, which is chart 1. Use the number of units column (b) count down until you reach the number of units in the ending inventory. In chart one each row is designated by the date those units were purchased. The rows have the number of units that were purchased on that date in time, the unit price paid for those units along with the total extended cost for all of the units purchased on that date. You will find that in counting units in chart one from the top down that the number of ending units for the last row to complete the total number of units in ending inventory may not be completely used up because some of those units were sold during the year and therefore are no longer in the ending inventory. For the last row used, you will need to multiply the number of units that are needed to complete the total ending inventory times the cost per unit to get the correct value for the row. 3. Once you have the units counted out then multiply out the units by the unit cost in each row to get the total extended cost. 4. Now total the column for number of units and total extended cost. These two columns will give you ending inventory in units and ending inventory cost. Never total the column for cost per unit down because it has no useful meaning or value. How to create chart 3 Cost of Goods Sold chart for LIFO 1. For LIFO you will need to use this chart: Item Title Amount Goods Available for Sale Less: Cost of Ending Inventory Equals: Cost of Goods Sold 2. Goods Available for Sale in dollars comes from chart 1 the inventory-listing chart. You will find that information at the bottom of the chart on the right hand side of your page.

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Periodic Inventory Valuation Methods

3. Next is less cost of ending inventory, which comes from chart 2 at the bottom of that chart. 4. Now subtract cost of ending inventory from goods available for sale to arrive at the cost of goods sold. How to create chart 4 Cost of Goods Sold chart using the Check Method for LIFO 1. For LIFO you will need to use this chart: Item Title Number of units Cost per unit Total Extended Cost Fourth purchase Third purchase Second purchase Cost of Goods Sold X 2. For the check method, you will start at the bottom of chart 1 and list items up until you complete the number of units sold during the year. As in counting down for ending inventory their will most likely be units in the last row where some units were sold and some units are still in ending inventory so you will have to recalculate that total extended cost for the row with only the units you are using. 3. Next recalculate out the total extended cost for each row to make sure that you have rechecked your calculations and that they are correct. Failure to do this recheck could lead to unwanted errors. 4. Finally total the columns down for number of units and total extended cost this will give you units sold and cost of goods sold. 5. Now check your total for chart 4 against the total in chart 3 if the totals match then you have a correct ending total for cost of goods sold.

MJC Revised 12/2010

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Periodic Inventory Valuation Methods

Weighted-average Inventory Method
The average cost per unit is equal to the goods available for sale divided by total units available for sale. Chart 1-Use chart 1 from page 1. Chart 2 the calculation for Average Cost per Unit chart: Goods Available for Sale Total units available for Sale Average cost per unit 1,260 140 9 Chart 3 the calculation for the value of ending inventory: Ending units Average Cost per unit Total Cost 60 9 540 Chart 4 the calculation for the value of Cost of goods sold: Item Title Amount Goods Available for Sale 1,260 Less: Cost of Ending Inventory 540 Equals: Cost of Goods Sold $720 Chart 5 the calculation for the value of Cost of Goods Sold using the Check Method: Ending Units Average Cost per unit Total Cost 80 9 720 Total ending cost 720

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Periodic Inventory Valuation Methods

Weighted Average Method How to create chart 2 Average cost per unit using the Weighted Average Method 1. For the Weighted Average Method the charts will be different from those of FIFO and LIFO. The second chart for this method will calculate the average cost per unit for the inventory. (a) (b) (c) Goods Available for Sale Total units available for Sale Average cost per unit (a) / (b) = (c) 2. You will find the goods available for sale in dollars at the bottom of chart 1. Divided that total dollar amount by the total units available for sale from chart 1 this will result in the average cost per unit. How to create chart 3 ending inventory in dollars using the Weighted Average Method 1. Start with these headers: (a) (b) Ending units Average Cost per unit (c) Total Cost (a) X (b) = (c)

2. For this chart, you will take the average cost per unit from chart 2 and multiply that dollar amount by the total number of units in ending inventory to get the total cost of ending inventory in dollars. How to create chart 4 cost of goods sold using the Weighted Average Method 1. You can use the chart that will provide you with the cost of goods sold which is just like chart 3 in the FIFO and LIFO methods: Item Title Amount Goods Available for Sale Less: Cost of Ending Inventory Equals: Cost of Goods Sold 2. Goods Available for Sale in dollar amounts comes from chart 1 the Inventory-Listing chart. You will find the information at the bottom of the chart on the right hand side of your page.

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Periodic Inventory Valuation Methods

3. Next, is Less: Cost of Ending Inventory which comes from chart 3 at the bottom of that chart. 4. Now subtract cost of ending inventory from goods available for sales to get the cost of goods sold. How to create chart 5 Cost of Goods Sold using the Check Method for Weighted Average Method 1. Using these chart headings:

(a) Ending Units Total ending cost

(b) Average Cost per unit

(c) Total Cost (a) X (b) = (c)

2. You will get the total average cost per unit from chart 2 and then multiply that dollar amount times the total number of units sold during the year, which comes from chart 1 to get the cost of goods sold. 3. Now check your total for chart 5 against the total in chart 4 if the totals match then you have a correct ending total for cost of goods sold.

MJC Revised 12/2010

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