【正文】 COGS 4. Periodic System vs. Perpetual System a) Periodic System ? The quantity of INV END is determined only by physical count, usually at least annually ? COGS for the period is determined by squeezing ? Does not keep a running total of the inventory balances INV BEG √ Purchases COGAFS (COGS) squeeze INV END physical count √ Key difference 19 A Determining Inventory amp。 COGS 2. Goods and Materials to be included in inventory f) Consigned Goods ? The seller (consignor) delivers goods to an agent (consignee) to hold and sell on the consignor’s behalf ? The seller should include the consigned goods in its inventory because title and risk of loss is retained by the seller even though the buyer possesses the goods ? Revenue will be recognized when goods are sold to a 3rd party. Title passes directly to the 3rd party (seller 3rd party) Seller’s inventory until goods sold to a 3rd party 11 A Determining Inventory amp。 COGS (P184185) B: Inventory Valuation (P185190) C: CostFlow Method (P185190) M8 D: Ratios (P191) E: LongTerm Construction Contracts (P191194) Measurement issue (how much) classification issue What to be included 3 A. Determining INV amp。 COGS 2. Goods and Materials to be included in inventory c) Goods in Transit ? If there is explicitly agreement: title passes in terms of the agreement ? If there is no such agreement: title passes when seller’s performance regarding delivery of goods is plete ? . (free on board): requires the seller to deliver the goods to the location indicated as . the seller’s expense. shipping point ① Title passes to buyer when seller delivers goods to a mon carrier ② Goods shipped should be included in the buyer’s inventory upon shipment destination ① Title passes to buyer when buyer receives goods from mon carrier ② Goods shipped should be included in the seller’s inventory until received by buyer buyer’s inventory upon shipment seller’s inventory until received by buyer 8 A Determining Inventory amp。 COGS 3. Cost Components of Production Inventory ? Raw materials that are placed into production and are directly traceable to the item being produced ? Freight in ? Insurance ? Storage ? Import duties ? Purchasing/Receiving dept. costs d) Direct Material (DM) ? Raw materials would be transferred into Workinprocess (WIP) should include: While freight out is selling EXP 16 A Determining Inventory amp。 COGS 4. Periodic System vs. Perpetual System c) Comparison of periodic and perpetual inventory methods ? To record sale ① periodic system: Dr. Cash $140,000 Cr. Sales $140,000 ② perpetual system: Dr. Cash $140,000 Cr. Sales $140,000 Dr. COGS $120,000 Cr. Inventory $120,000 Same as periodic system Additional Example: A pany purchased 50,000 units of merchandise for $6/unit. 20,000 units was sold $7/unit during the 1st operating year 22 A Determining Inventory amp。 COGS 2. Goods and Materials to be included in inventory i) Installment Sales ? The seller sells goods on a installment basis but retains legal title as security for the loan ? The goods should be included in the seller’s inventory if the % of uncollectible amounts cannot be estimated. ? If the uncollectible amount can be estimated, the transaction would be accounted for as a sale, and an allowance for uncollectible amounts would be recorded seller’s inventory if the uncollectible amounts cannot be estimated 14 A Determining Inventory amp。 COGS a) Retail inventory b) RM, WIP, and FG inventory 1. Types of inventories held for resale ? Resold in substantially the same form in which it was purchased ? Raw Material: inventory that is being held for use in the production process ? Working in process: inventory that is in production but inplete ? Finished goods: inventory that plete and ready for sale 6 A Determining Inventory amp。 COGS 1. Types of Inventories Held for ReSale 2. Goods and Materials to be Included in Inventory 3. Cost Component of Production Inventory 4. Perpetual System vs. Periodic System 5 A Determining Inventory amp。 COGS 2. Goods and Materials to be included in inventory h) Sales with a Mandatory Buyback ? The seller has a requirement to repurchase goods from the buyer ? The seller should include the goods in inventory even though title has passed to the buyer. seller’s inventory since the seller must buyback the goods later 13 A Determining Inventory amp。 COGS 4. Periodic System vs. Perpetual System c) Comparison of periodic and perpetual inventory methods ? To record purchase: ① periodic system: Example: A pany purchased 50,000 units of merchandise for $6/unit. 20,000 units was sold $7/unit during the 1st operating year Dr. Purchases $300,000 Cr. Cash or A/P $300,000 ② perpetual system: Dr. Inventory $300,000 Cr. Cash or A/P $300,000 21 A Determining Inventory amp。 COGS 3. Cost Components of Production Inventory e) Direct Labor (DL) ? Labor that is directly traceable to the item being produced ? Indirect labor includes items such as supervision, inspection, and maintenance ? Indirect materials include items such as fuel, lubricants, and shop supplies ? Overhead includes items such as depreciation of factory equipment, factory