Please someone help, I don’t understand how the 500 units are used for calculation in the FIFO approach asked in Example 5. Why are we looking for and stop at 500 units?
The question asks to calculate the value of closing inventory. To calculate the number of units for closing inventories, we can say… Opening Inventory Units + Purchased Units – Sold Units = Closing Inventory Units 300 + (400+400+400) – (500+400+100) = 500 units
Maybe you were thinking of cost of sales: Cost of Sales = Opening Inventory + Purchases – Closing Inventories
Why does a higher closing inventory lead to a higher profit and lower closing inventory lead to a lower profit? The more units you have in closing inventory the less you sold in the year, thus it should be the more closing inventory the lower the profit. Help me understand.
We are assuming that the sales are the same. In which case the higher the closing inventory means the lower the cost of what was sold. The lower the cost of sales then the higher the profit.
HI! I have an exam tomorow so pleasee help me quick! Test Q2: why does the answer include administrative overheads?? Shouldn’t only production costs be included? and here there is only carriage inwards and no other….though I am confused about whether we could include factory plant depreciation… what is meant by general administrative overheads? Please Help!
Hello, I have a similar exercise in Kaplan Exam Kit(exercise 26/page 8): A. buys and sells inventory during the month of August as follow: Opening inventory-100 units 2.52/unit 4 August -sales 20 units 8 August-purchases 140 units 2.56/unit 10 August-sales 90 units 18 august Purchases 200 units 2.78/unit 20 August Sales 180 units The AVCO is calculatedas follows: 100 units*2.52=252 140units*2.56=358 200 units*2.78=556 average cost per unit(252+358+556)/440=2.65 Closing inventory 150*2.65=397.5 The question is if I follow the Kaplan’s way and do the exercise which we have in a lecture the result is completly different.I’m confused and do not know what is correct
Good evening! Could you explain me one thing? I’m confused very much! Why in FIFO approach do we take not oldest units (300* 12 and 200*12,50), but latest (400*15 and 100*14)? It’s not the “first-in” units, but last!
pretty1 says
Please someone help, I don’t understand how the 500 units are used for calculation in the FIFO approach asked in Example 5. Why are we looking for and stop at 500 units?
DreamerSK says
Hi pretty1,
The question asks to calculate the value of closing inventory. To calculate the number of units for closing inventories, we can say…
Opening Inventory Units + Purchased Units – Sold Units = Closing Inventory Units
300 + (400+400+400) – (500+400+100) = 500 units
Maybe you were thinking of cost of sales: Cost of Sales = Opening Inventory + Purchases – Closing Inventories
pretty1 says
Thanks so much
DreamerSK says
Why does a higher closing inventory lead to a higher profit and lower closing inventory lead to a lower profit? The more units you have in closing inventory the less you sold in the year, thus it should be the more closing inventory the lower the profit. Help me understand.
John Moffat says
We are assuming that the sales are the same.
In which case the higher the closing inventory means the lower the cost of what was sold. The lower the cost of sales then the higher the profit.
DreamerSK says
Thanks.
awain says
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npaddy says
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coolgirl1984 says
5 Dollars for a pen? You need to change a supplier man…
John Moffat says
@coolgirl1984, But you don’t know what a wonderful pen it is 馃檪
coolgirl1984 says
@johnmoffat, That would only the salesperson say! 馃槈
kamibangash says
wow amazing and interesting lecture…… everything has explained very keen and clearly….thnxxxxxx
ymusmani says
HI! I have an exam tomorow so pleasee help me quick!
Test Q2: why does the answer include administrative overheads??
Shouldn’t only production costs be included? and here there is only carriage inwards and no other….though I am confused about whether we could include factory plant depreciation…
what is meant by general administrative overheads?
Please Help!
farhadsallihi says
Amazing…. very usefull
rahabmwangi says
a very gud lecture keep up the good work
sylwiin says
Hello, I have a similar exercise in Kaplan Exam Kit(exercise 26/page 8):
A. buys and sells inventory during the month of August as follow:
Opening inventory-100 units 2.52/unit
4 August -sales 20 units
8 August-purchases 140 units 2.56/unit
10 August-sales 90 units
18 august Purchases 200 units 2.78/unit
20 August Sales 180 units
The AVCO is calculatedas follows:
100 units*2.52=252
140units*2.56=358
200 units*2.78=556
average cost per unit(252+358+556)/440=2.65
Closing inventory 150*2.65=397.5
The question is if I follow the Kaplan’s way and do the exercise which we have in a lecture the result is completly different.I’m confused and do not know what is correct
mariazhadan says
Good evening! Could you explain me one thing? I’m confused very much!
Why in FIFO approach do we take not oldest units (300* 12 and 200*12,50), but latest (400*15 and 100*14)?
It’s not the “first-in” units, but last!
I’m waiting for your reply!
John Moffat says
@mariazhadan, with FIFO, it is the oldest units that are sold first. This means that the units left are always the newest.
onican says
Thank you much……
monik says
exellent…lot better explained then in the class
$eep Rock$ says
@monik, most certainly
zakir117 says
too good
DA CEILSO says
hi this is wonderful the lecture is perfect please keep it up open tuition job well done
estar says
tanks sooooo much
imogomotsi says
THANK U FOR THAT
denzyboo says
GREAT
mursaleen says
nyc……………well explained
s777 says
thanks and good explaination . keep it up opentuition people.