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Get Full Access to University of Memphis - ACCT 2010 - Class Notes - Week 6
Get Full Access to University of Memphis - ACCT 2010 - Class Notes - Week 6

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UNIVERSITY OF MEMPHIS / Accounting / ACCT 2010 / for the year, sealy incorporated reports net sales of \$50,000, cost of

# for the year, sealy incorporated reports net sales of \$50,000, cost of Description

##### Description: inventory and cost of good sold
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## What amount will Bennett report for cost of goods sold?

If you want to learn more check out which of the following statements is false regarding the amortization of intangible assets?

Common Mistake In calculating the weighted­average unit cost, be sure to use a weighted average of the unit cost  instead of the simple average. In the example above, there are three unit costs: \$7, \$9, and \$11. A simple average of these amounts is \$9 [= (7 + 9 + 11) ÷ 3]. The simple average, though, fails to  take into account that several more units were purchased at \$11 than at \$7 or \$9. So we need to  weight the unit costs by the number of units purchased. We do that by taking the total cost of  goods available for sale (\$10,000) divided by total number of units available for sale (1,000) for  a weighted average of \$10.

Common Mistake FIFO and LIFO describe more directly the calculation of cost of goods sold, rather than ending  inventory. For example, FIFO (first­in, first­out) directly suggests which inventory units are  assumed sold (the first ones in) and therefore used to calculate cost of goods sold. It is implicit  under FIFO that the inventory units not sold are the last ones in and are used to calculate ending  inventory.

## What amount would Madison report for cost of goods sold using LIFO under a periodic inventory system?

Common Mistake Many students use ending inventory rather than average inventory in calculating the inventory  turnover ratio. Generally, when you calculate a ratio that includes an income statement item (an  amount generated over a period) with a balance sheet item (an amount at a particular date), the  balance sheet item needs to be converted to an amount over the same period. This is done by  averaging the beginning and ending balances of the balance sheet item.

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