‣
🔹 FIFO Perpetual Example Problem (using 3-Step Method)
Assume you’re running a clothing store.
- On October 1, your inventory has 100 jackets, each costing $50, totaling $5,000.
- On October 12, you buy an additional 200 jackets at $60 each, costing $12,000.
- On October 15, you sell 50 jackets for $100 each, generating $5,000.
- On October 17, you buy an additional 100 jackets at $70 each, costing $7,000.
- On October 30th, you sell 100 jackets for $100 each, generating $10,000.
Using the above transactions and the Perpetual FIFO method, calculate the Cost of Goods Sold and the total cost of the Ending Inventory for October.
‣
🔹 Step 1: Write out the “Holy Grail” formula and input the problem’s values.
STEP 1 | Units | $ Cost |
Beginning Inventory | 100 | $5,000 |
Plus All Purchases | + 300 | + $19,000 |
Equals Goods Available for Sale (GAFS) | = 400 | = $24,000 |
Minus Ending Inventory | (250) | 🔹 (???) |
Equals Cost of Goods Sold
(COGS) | 150 | 🔹 ??? |
Of the 400 units available for sale, 150 were sold, leaving 250 units in the ending inventory.
The challenge now is to determine the dollar value of the Ending Inventory and the Cost of Goods Sold, which we will tackle in Step 2! | ||
‣
🔹 Step 2: Organize the Data Chronologically using the ‘Four Column Table’ (Date | Sales | COGS | Inventory Balance)
Assume you’re running a clothing store.
- On October 1, your inventory has 100 jackets, each costing $50, totaling $5,000.
- On October 12, you buy an additional 200 jackets at $60 each, costing $12,000.
- On October 15, you sell 50 jackets for $100 each, generating $5,000.
- On October 17, you buy an additional 100 jackets at $70 each, costing $7,000.
- On October 30th, you sell 100 jackets for $100 each, generating $10,000.
Using Perpetual FIFO, determine the Gross Profit, COGS, and the Ending Inventory cost for October.
Step 2: Write out the “Four Column” Table; Organize the Data Chronologically | Date | Sales | Cost of Goods Sold*
(This is where you apply FIFO!) | Inventory Balance |
Beginning Inventory | Oct 1 | - | - | 100 units @ $50/unit = $5,000 |
Purchase | Oct 12 | - | - | → 100 units @ $50/unit = $5,000
200 units @ $60/unit = $12,000 |
Sale | Oct 15 | 50 units @ $100/unit = $5,000 | 50 units @ $50/unit = $2,500
| 50 units @ $50/unit = $2,500
200 units @ $60/unit = $12,000 |
Purchase | Oct 17 | - | - | |
Sale | Oct 30 | 100 units @ $100/unit = $10,000 | 50 units @ $50/unit = $2,500
50 units @ $60/unit = $3,000
150 units sold at a total “Cost of Goods Sold” of $8,000 | 150 units @ $60/unit = $9,000
100 units @ $70/unit = $7,000
250 units in ending inventory at a total cost of $16,000 |
‣
- Purpose of the Table:
- This table is designed to answer: “Using FIFO, determine the COGS and the ending inventory cost for October.”
- Familiarize yourself with the end goal, so you understand the steps leading up to it.
- Handling Inventory:
- When entering Beginning Inventory or Purchases, only focus on the Inventory Balance column. Skip the Sales & COGS columns as these transactions only influence our inventory balance.
- New purchases should be listed underneath the current inventory, maintaining a chronological "top-to-bottom" order. This ensures easy application of FIFO or LIFO.
- After recording a transaction in the Inventory Balance, draw a line beneath it. It’s a simple trick to keep data organized.
- Handling Sales:
- Only during a sale should you fill in the Sales & COGS columns!
- The units sold (in the Sales column) should always equal the units in the COGS column. (If you sold 100 units, establish the COGS for each one of those 100 units.)
- Don’t forget to remove sold items from the Inventory Balance. It’s essential to update your balance to represent the items sold at specific price points.
- Determining COGS & Ending Inventory:
- COGS: Sum up all amounts in the COGS column.
- Ending Inventory Cost: Add up the values in the final block of the Inventory Balance column.
- Validate your work: Ensure the total units in your table's ending block correspond with the ending inventory units from Step 1 in the Holy Grail Formula. Discrepancies indicate an error.
- Final Tips:
- Always double-check your work — like we’ll see in Step 3! Mistakes can happen, but catching them early saves time and effort.
- Regularly practice using this table. With repetition, the process becomes intuitive.
‣
🔹 Step 3: Use the “Holy Grail” Formula to Check Your Work
See Table from Step 2:
Step 2: Write out the “Four Column” Table; Organize the Data Chronologically | Date | Sales | Cost of Goods Sold | Inventory Balance |
Beginning Inventory | Oct 1 | - | - | 100 units @ $50/unit = $5,000 |
Purchase | Oct 12 | - | - | → 100 units @ $50/unit = $5,000
200 units @ $60/unit = $12,000 |
Sale | Oct 15 | 50 units @ $100/unit = $5,000 | 50 units @ $50/unit = $2,500
| 50 units @ $50/unit = $2,500
200 units @ $60/unit = $12,000 |
Purchase | Oct 17 | - | - | |
Sale | Oct 30 | 100 @ $100/unit = $10,000 | 50 units @ $50/unit = $2,500
50 units @ $60/unit = $3,000
150 units sold at a total “Cost of Goods Sold” of $8,000! | 150 units @ $60/unit = $9,000
100 units @ $70/unit = $7,000
250 units in ending inventory at a total cost of $16,000! |
Check your work by plugging COGS and Ending Inventory from Step 2 into the “Holy Grail” Formula
Units | $ Cost | |
Beginning Inventory | 100 | $5,000 |
Plus Net Purchases | + 300 | + $19,000 |
Equals Goods Available for Sale (GAFS) | = 400 | = $24,000 |
Minus Ending Inventory | - 250 | - $16,000 |
Equals Cost of Goods Sold
(COGS) | = 150 | = $8,000 |
Notice that the figures from Step 2 in our ‘Four Column Table’ align perfectly with the formula!
Goods Available for Sale (GAFS) = $24,000
- MINUS Ending Inventory of $16,000
Equals a COGS of $8,000.
24,000 - 16,000 = 8,000!
The formula works, so our answer is correct! | ||
What if a question also asks you to calculate Gross Profit?
Total Sales Revenue: $15,000
MINUS COGS: ($8,000)
Gross Profit: $7,000 |
Remember, the "Holy Grail" formula is your exam safety net! - If Step 2's results deviate from the formula, there's an error. - If Step 2’s results follow the formula, like above, you've nailed it! It's a huge confidence booster to know you've got an answer correct!
‣
🔹 FIFO Periodic Example Problem (using 3-Step Method)
Assume you’re running a clothing store.
- On October 1, your inventory has 100 jackets, each costing $50, totaling $5,000.
- On October 12, you buy an additional 200 jackets at $60 each, costing $12,000.
- On October 15, you sell 50 jackets for $100 each, generating $5,000.
- On October 17, you buy an additional 100 jackets at $70 each, costing $7,000.
- On October 30th, you sell 100 jackets for $100 each, generating $10,000.
Using the above transactions and the Periodic FIFO method, calculate the Cost of Goods Sold and the total cost of the Ending Inventory for October.
‣
🔹 Step 1: Write out the “Holy Grail” formula and input the problem’s values.
STEP 1 | Units | $ Cost |
Beginning Inventory | 100 | $5,000 |
Plus All Purchases | + 300 | + $19,000 |
Equals Goods Available for Sale (GAFS) | = 400 | = $24,000 |
Minus Ending Inventory | (250) | 🔹 (???) |
Equals Cost of Goods Sold
(COGS) | 150 | 🔹 ??? |
Of the 400 units available for sale, 150 were sold, leaving 250 units in the ending inventory.
The challenge now is to determine the dollar value of the Ending Inventory and the Cost of Goods Sold, which we will tackle in Step 2! |
‣
🔹 Step 2: Organize the Data using the ‘Four Column Table’ (Date | Sales | COGS | Inventory Balance)
Assume you’re running a clothing store.
- On October 1, your inventory has 100 jackets, each costing $50, totaling $5,000.
- On October 12, you buy an additional 200 jackets at $60 each, costing $12,000.
- On October 15, you sell 50 jackets for $100 each, generating $5,000.
- On October 17, you buy an additional 100 jackets at $70 each, costing $7,000.
- On October 30th, you sell 100 jackets for $100 each, generating $10,000.
Using Periodic FIFO, determine the COGS and the ending inventory cost for October.
Step 2: Write out the “Four Column” Table; Organize the Data ACROSS THE WHOLE PERIOD! | Sales
(WHOLE PERIOD) | Cost of Goods Sold
(WHOLE PERIOD) | Inventory Balance
(WHOLE PERIOD) | |
150 Units Sold Across Whole Period! | 100 units @ $50/unit = $5,000
50 units @ $60/unit = $3,000
150 units sold at a total “Cost of Goods Sold” of $8,000 | 150 units @ $60/unit = $9,000
100 units @ $70/unit = $7,000
250 units in ending inventory at a total cost of $16,000 | ||
‣
- Purpose of the Table:
- This table is designed to answer: “Using FIFO, determine the COGS and the ending inventory cost for October.”
- Familiarize yourself with the end goal, so you understand the steps leading up to it.
- Handling Inventory:
- When entering Beginning Inventory or Purchases, only focus on the Inventory Balance column. Skip the Sales & COGS columns as these transactions only influence our inventory balance.
- New purchases should be listed underneath the current inventory, maintaining a chronological "top-to-bottom" order. This ensures easy application of FIFO or LIFO.
- After recording a transaction in the Inventory Balance, draw a line beneath it. It’s a simple trick to keep data organized.
- Handling Sales:
- Sales require attention in both the Sales & COGS columns.
- The units sold (in the Sales column) should always equal the units in the COGS column.
- Deduct sold items from the Inventory Balance. It’s essential to update your balance to represent the items sold at specific price points.
- Determine COGS for all units sold. If you sold 100 units, establish the COGS for each one of those 100 units.
- Determining COGS & Ending Inventory:
- COGS: Sum up all amounts in the COGS column.
- Ending Inventory Cost: Add up the values in the final block of the Inventory Balance column.
- Validate your work: Ensure the total units in your table's ending block correspond with the ending inventory units from Step 1 in the Holy Grail Formula. Discrepancies indicate an error.
- Final Tips:
- Always double-check your work — like we’ll see in Step 3! Mistakes can happen, but catching them early saves time and effort.
- Regularly practice using this table. With repetition, the process becomes intuitive.
‣
🔹 Step 3: Use the “Holy Grail” Formula to Check Your Work
See Table from Step 2:
Check your work by plugging COGS and Ending Inventory from Step 2 into the “Holy Grail” Formula
Units | $ Cost | |
Beginning Inventory | 100 | $5,000 |
Plus Net Purchases | + 300 | + $19,000 |
Equals Goods Available for Sale (GAFS) | = 400 | = $24,000 |
Minus Ending Inventory | - 250 | - $16,000 |
Equals Cost of Goods Sold
(COGS) | = 150 | = $8,000 |
Notice that the figures from Step 2 in our ‘Four Column Table’ align perfectly with the formula!
Goods Available for Sale (GAFS) = $24,000
- MINUS Ending Inventory of $16,000
Equals a COGS of $8,000.
24,000 - 16,000 = 8,000!
The formula works, so our answer is correct! | ||
What if a question also asks you to calculate Gross Profit?
Total Sales Revenue: $15,000
MINUS COGS: ($8,000)
Gross Profit: $7,000 |
Remember, the "Holy Grail" formula is your exam safety net! - If Step 2's results deviate from the formula, there's an error. - If Step 2’s results follow the formula, like above, you've nailed it! It's a huge confidence booster to know you've got an answer correct!
‣
🔹 LIFO Perpetual Example Problem (using 3-Step Method)
Assume you’re running a clothing store.
- On October 1, your inventory has 100 jackets, each costing $50, totaling $5,000.
- On October 12, you buy an additional 200 jackets at $60 each, costing $12,000.
- On October 15, you sell 50 jackets for $100 each, generating $5,000.
- On October 17, you buy an additional 100 jackets at $70 each, costing $7,000.
- On October 30th, you sell 100 jackets for $100 each, generating $10,000.
Using the above transactions and the Perpetual LIFO method, calculate the Cost of Goods Sold and the total cost of the Ending Inventory for October.
‣
🔹 Step 1: Write out the “Holy Grail” formula and input the problem’s values.
STEP 1 | Units | $ Cost |
Beginning Inventory | 100 | $5,000 |
Plus All Purchases | + 300 | + $19,000 |
Equals Goods Available for Sale (GAFS) | = 400 | = $24,000 |
Minus Ending Inventory | (250) | 🔹 (???) |
Equals Cost of Goods Sold
(COGS) | 150 | 🔹 ??? |
Of the 400 units available for sale, 150 were sold, leaving 250 units in the ending inventory.
The challenge now is to determine the dollar value of the Ending Inventory and the Cost of Goods Sold, which we will tackle in Step 2! |
‣
🔹 Step 2: Organize the Data using the ‘Four Column Table’ (Date | Sales | COGS | Inventory Balance)
Assume you’re running a clothing store.
- On October 1, your inventory has 100 jackets, each costing $50, totaling $5,000.
- On October 12, you buy an additional 200 jackets at $60 each, costing $12,000.
- On October 15, you sell 50 jackets for $100 each, generating $5,000.
- On October 17, you buy an additional 100 jackets at $70 each, costing $7,000.
- On October 30th, you sell 100 jackets for $100 each, generating $10,000.
Using Perpetual LIFO, determine the COGS and the ending inventory cost for October.
Step 2: Write out the “Four Column” Table; Organize the Data Chronologically | Date | Sales | Cost of Goods Sold* | Inventory Balance |
Beginning Inventory | Oct 1 | - | - | 100 units @ $50/unit = $5,000 |
Purchase | Oct 12 | - | - | 100 units @ $50/unit = $5,000
200 units @ $60/unit = $12,000 |
Sale | Oct 15 | 50 units @ $100/unit = $5,000 | 50 units @ $60/unit = $3,000 | 100 units @ $50/unit = $5,000
150 units @ $60/unit = $9,000 |
Purchase | Oct 17 | - | - | 100 units @ $50/unit = $5,000
150 units @ $60/unit = $9,000
|
Sale | Oct 30 | 100 @ $100/unit = $10,000 | 100 units @ $70/unit = $7,000
150 units sold at a total “Cost of Goods Sold” of $10,000 | 100 units @ $50/unit = $5,000
150 units @ $60/unit = $9,000
250 units in ending inventory at a total cost of $14,000 |
‣
- Purpose of the Table:
- This table is designed to answer: “Using LIFO, determine the COGS and the ending inventory cost for October.”
- Familiarize yourself with the end goal, so you understand the steps leading up to it.
- Handling Inventory:
- When entering Beginning Inventory or Purchases, only focus on the Inventory Balance column. Skip the Sales & COGS columns as these transactions only influence our inventory balance.
- New purchases should be listed underneath the current inventory, maintaining a chronological "top-to-bottom" order. This ensures easy application of FIFO or LIFO.
- After recording a transaction in the Inventory Balance, draw a line beneath it. It’s a simple trick to keep data organized.
- Handling Sales:
- Sales require attention in both the Sales & COGS columns.
- The units sold (in the Sales column) should always equal the units in the COGS column.
- Deduct sold items from the Inventory Balance. It’s essential to update your balance to represent the items sold at specific price points.
- Determine COGS for all units sold. If you sold 100 units, establish the COGS for each one of those 100 units.
- Determining COGS & Ending Inventory:
- COGS: Sum up all amounts in the COGS column.
- Ending Inventory Cost: Add up the values in the final block of the Inventory Balance column.
- Validate your work: Ensure the total units in your table's ending block correspond with the ending inventory units from Step 1 in the Holy Grail Formula. Discrepancies indicate an error.
- Final Tips:
- Always double-check your work — like we’ll see in Step 3! Mistakes can happen, but catching them early saves time and effort.
- Regularly practice using this table. With repetition, the process becomes intuitive.
‣
🔹 Step 3: Use the “Holy Grail” Formula to Check Your Work
See Table from Step 2:
Step 2: Write out the “Four Column” Table; Organize the Data Chronologically | Date | Sales | Cost of Goods Sold | Inventory Balance |
Beginning Inventory | Oct 1 | - | - | 100 units @ $50/unit = $5,000 |
Purchase | Oct 12 | - | - | 100 units @ $50/unit = $5,000
200 units @ $60/unit = $12,000 |
Sale | Oct 15 | 50 units @ $100/unit = $5,000 | 50 units @ $60/unit = $3,000
| 100 units @ $50/unit = $5,000
150 units @ $60/unit = $9,000 |
Purchase | Oct 17 | - | - | 100 units @ $50/unit = $5,000
150 units @ $60/unit = $9,000
|
Sale | Oct 30 | 100 @ $100/unit = $10,000 | 100 units @ $70/unit = $7,000
150 units sold at a total “Cost of Goods Sold” of $10,000! | 100 units @ $50/unit = $5,000
250 units in ending inventory at a total cost of $14,000! |
Check your work by plugging COGS and Ending Inventory from Step 2 into the “Holy Grail” Formula
Units | $ Cost | |
Beginning Inventory | 100 | $5,000 |
Plus Net Purchases | + 300 | + $19,000 |
Equals Goods Available for Sale (GAFS) | = 400 | = $24,000 |
Minus Ending Inventory | - 250 | - $14,000 |
Equals Cost of Goods Sold
(COGS) | = 150 | = $10,000 |
Notice that the figures from Step 2 in our ‘Four Column Table’ align perfectly with the formula!
Goods Available for Sale (GAFS) = $24,000
- MINUS Ending Inventory of $14,000
Equals a COGS of $10,000.
24,000 - 14,000 = 10,000!
The formula works, so our answer is correct! | ||
What if a question also asks you to calculate Gross Profit?
Total Sales Revenue: $15,000
MINUS COGS: ($10,000)
Gross Profit: $5,000 |
Remember, the "Holy Grail" formula is your exam safety net! - If Step 2's results deviate from the formula, there's an error. - If Step 2’s results follow the formula, like above, you've nailed it! It's a huge confidence booster to know you've got an answer correct!
‣
🔹 LIFO Periodic Example Problem (using 3-Step Method)
Assume you’re running a clothing store.
- On October 1, your inventory has 100 jackets, each costing $50, totaling $5,000.
- On October 12, you buy an additional 200 jackets at $60 each, costing $12,000.
- On October 15, you sell 50 jackets for $100 each, generating $5,000.
- On October 17, you buy an additional 100 jackets at $70 each, costing $7,000.
- On October 30th, you sell 100 jackets for $100 each, generating $10,000.
Using the above transactions and the Perpetual LIFO method, calculate the Cost of Goods Sold and the total cost of the Ending Inventory for October.
‣
🔹 Step 1: Write out the “Holy Grail” formula and input the problem’s values.
STEP 1 | Units | $ Cost |
Beginning Inventory | 100 | $5,000 |
Plus All Purchases | + 300 | + $19,000 |
Equals Goods Available for Sale (GAFS) | = 400 | = $24,000 |
Minus Ending Inventory | (250) | 🔹 (???) |
Equals Cost of Goods Sold
(COGS) | 150 | 🔹 ??? |
Of the 400 units available for sale, 150 were sold, leaving 250 units in the ending inventory.
The challenge now is to determine the dollar value of the Ending Inventory and the Cost of Goods Sold, which we will tackle in Step 2! |
‣
🔹 Step 2: Organize the Data using the ‘Four Column Table’ (Date | Sales | COGS | Inventory Balance)
Assume you’re running a clothing store.
- On October 1, your inventory has 100 jackets, each costing $50, totaling $5,000.
- On October 12, you buy an additional 200 jackets at $60 each, costing $12,000.
- On October 15, you sell 50 jackets for $100 each, generating $5,000.
- On October 17, you buy an additional 100 jackets at $70 each, costing $7,000.
- On October 30th, you sell 100 jackets for $100 each, generating $10,000.
Using Periodic LIFO, determine the COGS and the ending inventory cost for October.
Step 2: Write out the “Four Column” Table; Organize the Data ACROSS THE WHOLE PERIOD! | Sales
(WHOLE PERIOD) | Cost of Goods Sold
(WHOLE PERIOD) | Inventory Balance
(WHOLE PERIOD) | |
100 units @ $50/unit = $5,000 | ||||
150 Units Sold Across Whole Period! | 100 units @ $70/unit = $7,000
50 units @ $60/unit = $3,000
150 units sold at a total “Cost of Goods Sold” of $10,000 | 100 units @ $50/unit = $5,000 | ||
‣
- Purpose of the Table:
- This table is designed to answer: “Using LIFO, determine the COGS and the ending inventory cost for October.”
- Familiarize yourself with the end goal, so you understand the steps leading up to it.
- Handling Inventory:
- When entering Beginning Inventory or Purchases, only focus on the Inventory Balance column. Skip the Sales & COGS columns as these transactions only influence our inventory balance.
- New purchases should be listed underneath the current inventory, maintaining a chronological "top-to-bottom" order. This ensures easy application of FIFO or LIFO.
- After recording a transaction in the Inventory Balance, draw a line beneath it. It’s a simple trick to keep data organized.
- Handling Sales:
- Sales require attention in both the Sales & COGS columns.
- The units sold (in the Sales column) should always equal the units in the COGS column.
- Deduct sold items from the Inventory Balance. It’s essential to update your balance to represent the items sold at specific price points.
- Determine COGS for all units sold. If you sold 100 units, establish the COGS for each one of those 100 units.
- Determining COGS & Ending Inventory:
- COGS: Sum up all amounts in the COGS column.
- Ending Inventory Cost: Add up the values in the final block of the Inventory Balance column.
- Validate your work: Ensure the total units in your table's ending block correspond with the ending inventory units from Step 1 in the Holy Grail Formula. Discrepancies indicate an error.
- Final Tips:
- Always double-check your work — like we’ll see in Step 3! Mistakes can happen, but catching them early saves time and effort.
- Regularly practice using this table. With repetition, the process becomes intuitive.
‣
🔹 Step 3: Use the “Holy Grail” Formula to Check Your Work
See Table from Step 2:
Step 2: Write out the “Four Column” Table; Organize the Data ACROSS THE WHOLE PERIOD! | Date | Sales
(WHOLE PERIOD) | Cost of Goods Sold
(WHOLE PERIOD) | Inventory Balance
(WHOLE PERIOD) |
100 units @ $50/unit = $5,000 | ||||
150 Units Sold Across Whole Period! | 100 units @ $70/unit = $7,000
50 units @ $60/unit = $3,000
150 units sold at a total “Cost of Goods Sold” of $10,000 | 100 units @ $50/unit = $5,000 | ||
Check your work by plugging COGS and Ending Inventory from Step 2 into the “Holy Grail” Formula
Units | $ Cost | |
Beginning Inventory | 100 | $5,000 |
Plus Net Purchases | + 300 | + $19,000 |
Equals Goods Available for Sale (GAFS) | = 400 | = $24,000 |
Minus Ending Inventory | - 250 | - $14,000 |
Equals Cost of Goods Sold
(COGS) | = 150 | = $10,000 |
Notice that the figures from Step 2 in our ‘Four Column Table’ align perfectly with the formula!
Goods Available for Sale (GAFS) = $24,000
- MINUS Ending Inventory of $14,000
Equals a COGS of $10,000.
24,000 - 14,000 = 10,000!
The formula works, so our answer is correct! | ||
What if a question also asks you to calculate Gross Profit?
Total Sales Revenue: $15,000
MINUS COGS: ($10,000)
Gross Profit: $5,000 |
Remember, the "Holy Grail" formula is your exam safety net! - If Step 2's results deviate from the formula, there's an error. - If Step 2’s results follow the formula, like above, you've nailed it! It's a huge confidence booster to know you've got an answer correct!
‣
🔹 Perpetual Weighted Average Example Problem (using 3-Step Method)
Assume you’re running a clothing store.
- On October 1, your inventory has 100 jackets, each costing $50, totaling $5,000.
- On October 12, you buy an additional 200 jackets at $60 each, costing $12,000.
- On October 15, you sell 50 jackets for $100 each, generating $5,000.
- On October 17, you buy an additional 100 jackets at $70 each, costing $7,000.
- On October 30th, you sell 100 jackets for $100 each, generating $10,000.
Using the above transactions and the Perpetual Weighted Average method, calculate the Cost of Goods Sold and the total cost of the Ending Inventory for October.
‣
🔹 Step 1: Write out the “Holy Grail” formula and input the problem’s values.
STEP 1 | Units | $ Cost |
Beginning Inventory | 100 | $5,000 |
Plus All Purchases | + 300 | + $19,000 |
Equals Goods Available for Sale (GAFS) | = 400 | = $24,000 |
Minus Ending Inventory | (250) | 🔹 (???) |
Equals Cost of Goods Sold
(COGS) | 150 | 🔹 ??? |
Of the 400 units available for sale, 150 were sold, leaving 250 units in the ending inventory.
The challenge now is to determine the dollar value of the Ending Inventory and the Cost of Goods Sold, which we will tackle in Step 2! |
‣
🔹 Step 2: Organize the Data using the ‘Four Column Table’ (Date | Sales | COGS | Inventory Balance)
Assume you’re running a clothing store.
- On October 1, your inventory has 100 jackets, each costing $50, totaling $5,000.
- On October 12, you buy an additional 200 jackets at $60 each, costing $12,000.
- On October 15, you sell 50 jackets for $100 each, generating $5,000.
- On October 17, you buy an additional 100 jackets at $70 each, costing $7,000.
- On October 30th, you sell 100 jackets for $100 each, generating $10,000.
Using Perpetual Weighted Average, determine the COGS and the ending inventory cost for October.
Step 2: Write out the “Four Column” Table; Organize the Data Chronologically | Date | Sales | Cost of Goods Sold | Inventory Balance
(TOTAL COST / TOTAL UNITS)
= Weighted Average Cost |
Beginning Inventory | Oct 1 | - | - | |
Purchase | Oct 12 | - | - | |
Sale | Oct 15 | 50 units @ $100/unit = $5,000 | 50 @ $56.67 = $2,833.50 | |
Purchase | Oct 17 | - | - | |
Sale | Oct 30 | 100 @ $100/unit = $10,000 | 100 @ $60.48 = $6,048
150 units sold at a total “Cost of Goods Sold” of $8,881.50 | 250 units @ $60.48/unit = $15,120
250 units in ending inventory at a total cost of $15,120 |
‣
- Purpose of the Table:
- This table is designed to answer: “Using LIFO, determine the COGS and the ending inventory cost for October.”
- Familiarize yourself with the end goal, so you understand the steps leading up to it.
- Handling Inventory:
- When entering Beginning Inventory or Purchases, only focus on the Inventory Balance column. Skip the Sales & COGS columns as these transactions only influence our inventory balance.
- New purchases should be listed underneath the current inventory, maintaining a chronological "top-to-bottom" order. This ensures easy application of FIFO or LIFO.
- After recording a transaction in the Inventory Balance, draw a line beneath it. It’s a simple trick to keep data organized.
- Handling Sales:
- Sales require attention in both the Sales & COGS columns.
- The units sold (in the Sales column) should always equal the units in the COGS column.
- Deduct sold items from the Inventory Balance. It’s essential to update your balance to represent the items sold at specific price points.
- Determine COGS for all units sold. If you sold 100 units, establish the COGS for each one of those 100 units.
- Determining COGS & Ending Inventory:
- COGS: Sum up all amounts in the COGS column.
- Ending Inventory Cost: Add up the values in the final block of the Inventory Balance column.
- Validate your work: Ensure the total units in your table's ending block correspond with the ending inventory units from Step 1 in the Holy Grail Formula. Discrepancies indicate an error.
- Final Tips:
- Always double-check your work — like we’ll see in Step 3! Mistakes can happen, but catching them early saves time and effort.
- Regularly practice using this table. With repetition, the process becomes intuitive.
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🔹 Step 3: Use the “Holy Grail” Formula to Check Your Work
See Table from Step 2:
Check your work by plugging COGS and Ending Inventory from Step 2 into the “Holy Grail” Formula
Units | $ Cost | |
Beginning Inventory | 100 | $5,000 |
Plus Net Purchases | + 300 | + $19,000 |
Equals Goods Available for Sale (GAFS) | = 400 | = $24,000 |
Minus Ending Inventory | - 250 | - $15,120 |
Equals Cost of Goods Sold
(COGS) | = 150 | = $8,880 |
Notice that the figures from Step 2 in our ‘Four Column Table’ align perfectly with the formula!
Goods Available for Sale (GAFS) = $24,000
- MINUS Ending Inventory of $15,120
Equals a COGS of $8,880
24,000 - 15,120 = 8,880
The formula works, so our answer is correct! | ||
What if a question also asks you to calculate Gross Profit?
Total Sales Revenue: $15,000
MINUS COGS: ($8,880)
Gross Profit: $5,000 |
Remember, the "Holy Grail" formula is your exam safety net! - If Step 2's results deviate from the formula, there's an error. - If Step 2’s results follow the formula, like above, you've nailed it! It's a huge confidence booster to know you've got an answer correct!
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🔹 Periodic Weighted Average Example Problem (using 3-Step Method)
Assume you’re running a clothing store.
- On October 1, your inventory has 100 jackets, each costing $50, totaling $5,000.
- On October 12, you buy an additional 200 jackets at $60 each, costing $12,000.
- On October 15, you sell 50 jackets for $100 each, generating $5,000.
- On October 17, you buy an additional 100 jackets at $70 each, costing $7,000.
- On October 30th, you sell 100 jackets for $100 each, generating $10,000.
Using the above transactions and the Periodic Weighted Average method, calculate the Cost of Goods Sold and the total cost of the Ending Inventory for October.
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🔹 Step 1: Write out the “Holy Grail” formula and input the problem’s values.
STEP 1 | Units | $ Cost |
Beginning Inventory | 100 | $5,000 |
Plus All Purchases | + 300 | + $19,000 |
Equals Goods Available for Sale (GAFS) | = 400 | = $24,000 |
Minus Ending Inventory | (250) | 🔹 (???) |
Equals Cost of Goods Sold
(COGS) | 150 | 🔹 ??? |
Of the 400 units available for sale, 150 were sold, leaving 250 units in the ending inventory.
The challenge now is to determine the dollar value of the Ending Inventory and the Cost of Goods Sold, which we will tackle in Step 2! |
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🔹 Step 2: Organize the Data using the ‘Four Column Table’ (Date | Sales | COGS | Inventory Balance)
Assume you’re running a clothing store.
- On October 1, your inventory has 100 jackets, each costing $50, totaling $5,000.
- On October 12, you buy an additional 200 jackets at $60 each, costing $12,000.
- On October 15, you sell 50 jackets for $100 each, generating $5,000.
- On October 17, you buy an additional 100 jackets at $70 each, costing $7,000.
- On October 30th, you sell 100 jackets for $100 each, generating $10,000.
Using Perpetual Weighted Average, determine the COGS and the ending inventory cost for October.
Step 2: Write out the “Four Column” Table; Organize the Data ACROSS THE WHOLE PERIOD! | Sales
(WHOLE PERIOD) | Cost of Goods Sold
(WHOLE PERIOD) | Inventory Balance
(WHOLE PERIOD)
TOTAL COST / TOTAL UNITS
= Weighted Average Cost | |
150 Units Sold Across Whole Period! | 150 @ $60/unit = $9,000
150 units sold at a total “Cost of Goods Sold” of $9,000 | 250 units @ $60/unit = $15,000
250 units in ending inventory at a total cost of $15,000 | ||
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- Purpose of the Table:
- This table is designed to answer: “Using Periodic FIFO, determine the COGS and the ending inventory cost for October.”
- Familiarize yourself with the end goal, so you understand the steps leading up to it.
- Handling Inventory:
- Plug in your inventory balance (Beginning Inventory + Purchases) across the entire period in chronological order.
- Don’t forget to update your inventory balance after considering the COGS you “pulled” from your units sold.
- Handling Sales:
- Combine all the units sold across the entire period.
- Determine COGS for all units sold. If you sold 150 units, establish the COGS for each one of those 150 units.
- Determining COGS & Ending Inventory:
- COGS: Sum up all amounts in the COGS column.
- Ending Inventory Cost: Add up the values in the final block of the Inventory Balance column.
- Validate your work: Ensure the total units in your table's ending block correspond with the ending inventory units from Step 1 in the Holy Grail Formula. Discrepancies indicate an error.
- Final Tips:
- Always double-check your work — like we’ll see in Step 3! Mistakes can happen, but catching them early saves time and effort.
- Regularly practice using this table. With repetition, the process becomes intuitive.
‣
🔹 Step 3: Use the “Holy Grail” Formula to Check Your Work
See Table from Step 2:
Check your work by plugging COGS and Ending Inventory from Step 2 into the “Holy Grail” Formula
Units | $ Cost | |
Beginning Inventory | 100 | $5,000 |
Plus Net Purchases | + 300 | + $19,000 |
Equals Goods Available for Sale (GAFS) | = 400 | = $24,000 |
Minus Ending Inventory | - 250 | - $15,000 |
Equals Cost of Goods Sold
(COGS) | = 150 | = $9,000 |
Notice that the figures from Step 2 in our ‘Four Column Table’ align perfectly with the formula!
Goods Available for Sale (GAFS) = $24,000
- MINUS Ending Inventory of $15,000
Equals a COGS of $9,000
24,000 - 15,000 = 9,000
The formula works, so our answer is correct! | ||
What if a question also asks you to calculate Gross Profit?
Total Sales Revenue: $15,000
MINUS COGS: ($???)
Gross Profit: $5,000 |
Remember, the "Holy Grail" formula is your exam safety net! - If Step 2's results deviate from the formula, there's an error. - If Step 2’s results follow the formula, like above, you've nailed it! It's a huge confidence booster to know you've got an answer correct!
