Inventory
Introduction
Article 12 of Commercial Code:
Goods Aquired = purchase cost + incidental purchase cost (commission)
Goods Produced = production cost
When quantities were acquired in different periods, we have two ways to determine price of the output:
- Average
- Oldest Acquisition Price (First in First Out - FIFO)
Average
THIS METHOD SHOULD BE USED AT THE END OF THE YEAR
Sum of weighted cost
Add all weighted cost.
Total Input Quantity
Calculate the quantity of all inputs goods by adding all quantites of input/acquisition.
FIFO
THIS METHOD SHOULD BE USED FOR EACH EXIT TRANSACTION
Inputs Used
The first step is to determine which and how many input goods are consumed.
Consumption
Add all the weighted cost of consumed goods
Final Stock Value
The final stock value is the sum of weighted unit cost of the remaining (not used) goods.
Example 1
Date | Movement | Quantities | Unit of cost of acquisition |
---|---|---|---|
January | Purchase | 200 | 0.40 |
February | Purchase | 1000 | 0.36 |
June | Purchase | 750 | 0.33 |
August | Purchase | 600 | 0.38 |
September | Purchase | 400 | 0.36 |
November | Consumption | 2500 | ??? |
Purchase = input
Consumption = output
Average
Step 1: Weighted Cost
Weighted cost are calculated in the specific column.
Step 2: Sum of Weighted Cost
We add all weighted cost.
Step 3: Total Quantity
We calculate the total acquired/input goods.
Step 4: Average Weighted Cost
We find the average with the average formula
Step 5: Consumption
Now that we have average weighted unit price, we can find the consumption.
Step 6: Final Stock Value
The final stock value can thus be calculated:
FIFO
Step 1: Inputs used
From the table we can see that we use everything from January, everything from February, everything from June and 550 from August.
Step 2: Weighted Cost
We calculate the weighted cost for the used goods.
Step 3: Consumption
We, then, add all the weighted cost to have the consumption cost:
Step 4: Final Stock Value
The remaining goods are:
Weighted costs of remaining stock:
We add them up:
Comparison
- Average
- Consumption: $900
- Final Stock Value:$162
- FIFO
- Consumption: $856.5
- Final Stock Value: $163
Example 2
Date | Description | Quantity | Unit Price |
---|---|---|---|
1 September | Initial stock | 50 | $1,800 |
5 September | Exit voucher n.S451 | 30 | ??? |
7 September | Entry voucher n.E920 | 140 | $1,950 |
8 September | Exit voucher n.S452 | 40 | ??? |
15 September | Exit voucher n.S453 | 54 | ??? |
17 September | Entry voucher n.E921 | 32 | $1,860 |
21 September | Entry voucher n.E922 | 48 | $1,435 |
26 September | Exit voucher n.S454 | 120 | ??? |
Average
Step 1: Weighted Cost
We calculate the weighted cost for all acquired goods (all entry vouchers).
Step 2: Sum of Weighted Cost
We add all the weighted cost to have the sum of weighted cost.
Step 3: Total Quantity
We add all the acquired quantities to have the total quantity.
Step 4: Average Weighted Cost
We divide the sum of weighted cost by the total quantity to have the average weighted cost.
Step 5: Consumption
We calculate the consumption cost.
Total quality consumed is the sum of all exit quantities.
Step 6: Final Stock Value
We calculate the final stock value.
FIFO
Step 1: Consumption
We calculate the consumption cost.
Step 2: Final Stock Value
We calculate the final stock value.
Comparison
- Average
- Consumption: $444,680
- Final Stock Value:$47,320
- FIFO
- Consumption: $454,090
- Final Stock Value: $37,310
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