# FIFO-Decreasing - BC Bookkeeping Tutorials|dwmbeancounter.com

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## FIFO-Decreasing

Costing Methods
FIFO Calculations Using the Perpetual and Periodic Inventory System
Decreasing Prices

FIFO - First-in First-out

Earlier, we took a look at the effects of rising prices on our Inventory Calculations, now it's time to take a look at the effect of decreasing prices used with the FIFO Perpetual and Period Costing Methods.

You should now be somewhat familiar with the calculations and computations used with the different costing and inventory methods. Whether prices are increasing, declining, or fairly steady the calculations and computations used are the same. Price fluctuations do; however, affect the results that the different costing methods produce.

FIFO with the Perpetual Inventory Method

The following information about our product Super Widget will be used to illustrate the record keeping and calculations involved using the Periodic and Perpetual Inventory Methods and the different Costing Methods (Cost Flow Assumptions).

• Sales of Super Widgets made during the year at a constant selling price of \$15.00 throughout the year are as follows:

Date                                     Quantity Sold         Sales Amount
January 20, xxxx                       100                       1,500
March 30, xxxx                         200                       3,000
June 5, xxxx                             150                       2,250
June 30, xxxx                             70                       1,050
October 20, xxxx                       100                       1,500
December 15, xxxx                     90                       1,350
December 31, xxxx                   140                       2,100

Total Sales                                850                     12,750

Our Schedule of Purchases and Beginning Inventory

• Beginning Inventory is made up of 100 units with a cost per unit of \$8.00 for a total cost assigned of \$800.00.

• Purchases of Super Widget made during the year are as follows:

Date                                Quantity   Unit Cost     Extended Cost     Invoice Number     Supplier
January 15, xxxx                 200        \$7.50           1,500                A-976123             Acme Products
March 5, xxxx                     300         \$7.25          2,175                7898000               Alternate Products
September 10, xxxx            200         \$7.00          1,400                A-999999              Acme Products
December 20, xxxx             150         \$6.75          1,012.50            B-789012              Acme Products

Total Purchases                   850                           6,087.50

Notice that the cost per unit of purchasing our Super Widgets decreases from \$7.50 to \$6.75 during the period.

Our Stock Record Card (Subsidiary Ledger Card) for Super Widgets assuming a FIFO Cost Flow appears below:
FIFO with the Periodic Method

I'm getting a little lazy. We should know by now that we get the same results for the costs assigned to our Ending Inventory and Cost Of Goods Sold whether we use FIFO with the Perpetual or Periodic Method.

Our costs are assigned as follows:

Ending Inventory              Cost Of Goods Sold          Total Costs Accounted For
\$675.00                             \$6,212.50                          \$6,887.50

Don't believe me, huh ! I know, I'll prove it. Let's take a look at our Schedule Of Beginning Inventory and Purchases.

Our Schedule of Purchases and Beginning Inventory

• Beginning Inventory is made up of 100 units with a cost per unit of \$8.00 for a total cost assigned of \$800.00.

• Purchases of Super Widget made during the year are as follows:

Date                           Quantity       Unit Cost    Extended Cost      Invoice Number      Supplier
January 15, xxxx           200             \$7.50            1,500               A-976123              Acme Products
March 5, xxxx               300             \$7.25            2,175               7898000                Alternate Products
September 10, xxxx      200             \$7.00            1,400               A-999999               Acme Products
December 20, xxxx       150             \$6.75            1,012.50           B-789012              Acme Products

Total Purchases             850                                 6,087.50

Remember with FIFO we work backward starting with our newest (last) unit purchase cost. From our schedule or search and analysis of invoices, our newest invoice is from our supplier Acme Products, dated December 20, xxxx, Invoice Number B-789012, for 150 units at a unit cost of \$6.75. Since we only have 100 units remaining in our ending inventory, we lucked out.

All our Super Widgets will be assigned a unit cost of \$6.75 using the unit cost from Invoice Number B-789012 dated December 20, xxxx resulting in an Ending Inventory Value of \$675.00 (100 units @ \$6.75).

Using the data from our Schedule, the calculation of the cost assigned to our units sold (Cost Of Goods Sold) is straight forward.

Purchased Dollars    Purchased Units
Beginning Inventory                                          \$800.00                      100
Purchases                                                      \$6,087.50                      850

Total Cost and Units To Account For                  \$6,887.50                      950

Costs Assigned to Cost Of Goods Sold
Cost Of Goods Sold Calculation:
Dollars                  Units
Total Dollars and Units To Account For                       \$6,887.50                 950
Less: Costs and Units Assigned To Ending Inventory        675.00                100
Costs and Units Assigned To Cost Of Goods Sold         \$6,212.50                850

What's Next ?

LIFO-Rising Prices
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