Week 7 — Inventory Costing

Why this matters

A hardware store whose paint costs keep rising and a coffee roaster whose bean prices swing both buy one item at different costs; the method they pick decides the profit their statements report.

In plain language

A store often buys the same item several times at different prices. When it sells some of them, it has to decide which price to count as the cost of what it sold. That decision is called a cost flow assumption (a rule for which costs count as sold and which stay on the shelf). This week you learn the four common rules and work each one on the same set of bicycle helmets. You also learn two rules set by outside bodies: one framework does not allow one of the methods, and inventory can never be reported above what it is expected to bring in.

• Already covered: Week 6 gave you Inventory, cost of goods sold, and gross profit.
• This week: FIFO, LIFO, weighted average, and two rules from outside bodies.
• How they connect: each method splits Week 6's cost of goods sold differently.
• Where we're going next: Week 8, Midterm Review & Exam.

Focus

When a shop buys identical goods at different costs, which cost belongs to the goods it sold?

By the end of this module, you should be able to:

• [ ] compute cost of goods sold by FIFO, LIFO, and weighted average
• [ ] describe each method's effects when costs rise
• [ ] state the IFRS rule on LIFO
• [ ] apply the lower of cost and net realizable value

To-do

Plan your week

1. Read Chapter 7 (~40–50 minutes), then the lecture and slides.
2. Work the lecture tutorial (60–90 minutes).
3. Do the practice exercises (15–25 minutes).
4. Do the Accounting Workshop (about 90 minutes), discussion, and assignment.
5. Take the quiz.

This week's checkpoint: cost the helmets by FIFO and LIFO and check each split adds back to the total.

You've got this

Take it in order, and ask your instructor early if stuck.

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