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INVENTORIES AND THE COST OF GOODS SOLD


Having the right merchandise available at the right time and in the right place is critically important to all companies that sell products to their customers. These businesses include chain stores such as grocery stores, drugstores, and department stores.

Consider Safeway, Inc.—a giant grocery chain with nearly 1,700 stores nationwide. When customers shop at Safeway , they expect to find the items they want in stock and ready to purchase. If not, they most likely will find another place to shop. To meet the needs of every customer, each Safeway store must stock more than 10,000 products. Controlling such a diverse selection of inventory is a major challenge in the highly competitive environment of food retailing.

AFTER STUDYING THIS CHAPTER, YOU SHOULD BE ABLE TO:

In a perpetual inventory system, determine the cost of goods sold using (a) specific identification, (b) average cost, (c) FIFO, and (d) LIFO. Discuss the advantages and shortcomings of each method.

Explain the need for taking a physical inventory.

Record shrinkage losses and other year-end adjustments to inventory.

Explain the effects on the income statement of errors in inventory valuation.

Compute the inventory turnover rate and explain its uses.

In a periodic inventory system, determine the ending inventory and the cost of goods sold using (a) specific identification, (b) average cost, (c) FIFO, and (d) LIFO.

Estimate the cost of goods sold and ending inventory by the gross profit method and by the retail method.





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