Inventory management

Inventory management is the art of making in-demand products available when customers want them,
while keeping inventory costs low.

Inventory management is the supervision of non-capitalized assets (inventory) and stock items. A
component of supply chain management, inventory management supervises the flow of goods from
manufacturers to warehouses and from these facilities to point of sale.

FIFO

FIFO is the acronym for First-in, first-out.Under FIFO, as items leave inventory, the accountant precedes
as though the single item in stock for the longest time leaves first. And, the next item to leave has the value of
the item on hand second longest, and so on. Under FIFO the assumption is that the oldest inventory is used
first. (In many businesses that is in fact what happens, regardless of the accounting method.) As a result, the
ending inventory is valued on your balance sheet at a cost closest to the current cost since prices tend increase
over time.

LIFO

LIFO is the acronym for last-in, first-out. It is a cost flow assumption that can be used by U.S.
companies in moving the costs of products from inventory to the cost of goods sold.
Under LIFO the latest or more recent costs of products purchased (or produced) are the first
costs expensed as the cost of goods sold.

Average Cost

Under the average cost method, the accountant computes a weighted average cost of goods sold per
unit.

Practice Questions
LIFO/ FIFO/Average

Question no 1

The Breeze trading company discloses the following information for the month of August 2016.

 Aug. 01: Beginning inventory, 600 units @ 5 each each.

 Aug. 10: Sold 400 units @ 12 each.
  Aug. 11: Purchased 1,600 units @ 6 each.
 Aug. 15: Sold 1,000 units @ 12.50 each.
 Aug. 20: Purchased 1,000 units @ 6.50 each.
 Aug. 27: Sold 600 units @ 13.50 each.

Required: LIFO/ FIFO/Average

Question no 2.

Bike LTD purchased 10 bikes during January and sold 6 bikes, details of which are as follows:

 January 1 Purchased 5 bikes @ 50000 each

 January 5 Sold 2 bikes
 January 10 Sold 1 bike
 January 15 Purchased 5 bikes @ 70000 each
 January 25 Sold 3 bikes

Required: LIFO/ FIFO/Average

Q.1 A company has a following record of inventory management you are required to calculate closing
stock of inventory under of FIFO,LIFO,Average cost Method.

Date

1/1/2017 Balance inventory 400@30 each

3/1/2017 Purchased 600@ 40 each
5/1/2017 sold 200 units
7/1/2017 Purchased 200@ 50 each
8/1/2017 sold 200 units
9/1/2017 sold 100 units
11/1/2017 Purchased 300@ 10 each
12/1/2017 Return 100 units purchased on 11.1.2017

Q.2 A company has a following record of inventory management you are required to calculate closing
units and stock of laptops inventory under of FIFO,LIFO,Average cost Method.
Date

7/1/2017 sold 4 laptops

8/1/2017 sold 5 laptops
2/1/2017 Received 15 laptops @ 15000 each
3/1/2017 Received 10 laptops @ 1000 each
11/1/2017 Received 4 laptops @ 2000 each
12/1/2017 sold 5 laptops

Q.3 A company has a following record of inventory management you are required to calculate closing
units and stock of toys under of FIFO,LIFO,Average cost Method.

1/1/2017 Balance inventory 600@ 50 each

2/1/2017 Received units 500@ 10 each
3/1/2017 Received units 500@ 15 each
4/1/2017 Issued 500 units
7/1/2017 Issued 200 units
8/1/2017 Return 50 units from factory to store
9/1/2017 Issued 300 Units
5/1/2017 Purchased 600 units @ 30 each
6/1/2017 Return 200 units to supplier purchased on 2.1.17