Good afternoon or good morning, whatever it is in your neck of the woods. I am going to be providing a lecture today on inventory accounting. We're going to look at three different methods, FIFO, LIFO, and the average cost method for the inventory flow under both perpetual and periodic system.
And as well, I'm going to do a dollar value LIFO problem. So I am an accounting, my name is Roy Rumble, I'm an accounting... professor at the University of North Texas.
And I'm recording this for my intermediate one accounting class, accounting 3110, but it is publicly available. And then hopefully, you'll get something out of this. So with that, I'm going to share my screen. I got a lot of work today.
So I'm going to share my screen and stop talking and get started here. So we're going to do again, three problems, and I'm doing three different problems. The same thing, just different numbers. for one reason, because this is the problem that's going to be on my exam. And I'm trying my best to help my students pass, but they have to learn it.
Now, why do you do three different ones? I think there is value in redundancy and in practicing. Think about the offensive lineman on a football team.
Does he just practice once and one practice a week, shows up on Saturday and goes out and blocks? No, he doesn't practice. like a thousand times. And so he's going to practice and practice and practice. Coach is going to yell at him a few times.
And when it becomes game day, man, he's ready to go. Like he could do it in his sleep. He knows exactly what to do, where to go, how to block. And the same thing for every player on that football team. So that's what this is about.
Practice. We're going to do three of these today. And so you have the chance to pause the screen, you know, right after I finish talking here, pause the screen, you go work the problem.
restart it see how i work the problem even if you got it right go do it again just like that offensive lineman do it three four five times and when it becomes your game day what's your game day exam day when it's your game day you'll be ready to go and so that's my hope for you so all right here's my little pause uh short pause you can pause the screen what we're going to do here and consider consider this the first three problems are going to be under the peer up periodic system, meaning the company is not automatically recording these inventory transactions. We're going to look at the inventory on hand at the end and calculate cost of goods sold. And we're going to use both the FIFO, LIFO, and average cost methods. Pause, go work it, get it right.
All right. So hopefully you're back now. And so let's look at these transactions.
I cannot answer that right now. So, you'll have to get me later. So, let's take a look at these problems here.
And so, I'm going to start out with how much I'm going to go calculate inventory available for sale. So, let's look at beginning inventory and we're going to look at units. Cost per unit and then total dollars.
All right, beginning inventory, we've got $2,000 and they cost $5.30 per unit. Now, if I multiply that out, $2,000 times $5.30 is $10,600. So that was our ending inventory in the last accounting period and it becomes our beginning.
inventory for now. Now let's just go pick up the purchases here. We'll just go down the line.
So here's a purchase on August 8th and we purchased 8,000 units at $5.50. And so 550 times 8,000 is $44,000. I'm going to just check that on my calculator and make sure I got this right. $44,000, that's correct.
And again, if we were under the perpetual system method, we go calculate an average cost right now, middle of the month, and that's what this next sell transaction on August 14th would be. This is a periodic method. So we're going to add up all the purchases with the beginning inventory and come up with an available sale. So next purchase is August 14th, and we purchased 6,000 at $5.60.
And 560 times 6,000 is 33,600. And that's my August 18th. Oh, August 14th. And, oh, I'm sorry. This was the August 18th purchase.
August 14th was a sale. We'll take care of that later. So I've got my August 8th.
Make sure I'm getting this right. August 18th. And then I got my 828 purchase.
On August 28th, I'm going to purchase 4,000, and they cost me $5.80. Look at this. Rising prices.
Therefore, we know our cost of goods sold under LIFO will be less, and our profit will be more. So 4,000 times 580, 23,200. And let's see. That's our last purchase. And so let's go look at.
available for sale. We've got 20,000 units available for sale and total dollars available. So I'm just going to add all these up equals 111,400.
I'm using my spreadsheet to do this. A little bit of a cheat sheet. You can't use that in class, that's for sure.
I'm just checking my math. Yep, 111,400. That's how much is available for sale. Now, let's go do how much we sold.
We get the units right, at least. How much did we sell? We sold 6,000 units on August 14th and another 7,000 on August 25th.
And so that's 13,000. I'm only doing this on the units because I'm in the periodic, that's why. And so in the inventory, in units, I've got 7,000 units out there.
And so the challenge is, hey, what cost do I put? And even though I have 7,000 units and it'd be 99% of the companies. They don't know which of these units are the 7,000.
They're sitting out there. They're all the same. They got commingled.
Which one of the seven? We don't know. So again, as I said in my inventory lecture, we have to make assumptions in accounting. You have to stick with the same assumption every year. You're not allowed to change year by year.
And so once you pick one of these methods, that's your method. So let's start with FIFO. First in, first out.
So now we're going to go take this ending inventory of 7,000. and we're going to value it. And so we know, okay, first in, first out. So, you know, these are gone. These are the first ones we bought.
I put these in order. And so we got to go back. If the first one's in or the first one's out, then the last ones are the ones that are still there. And so we know all 4,000 of those are still there and they cost us. 580 and we know the number 23,200.
So we're looking for another 3,000 units. Oh, go up. Oh, there's plenty in this next one.
There's 3,000 at 560. I'll have to multiply that out. Now that equals 16,800. There now is my 7,000 units.
ending inventory. Remember, first one's in, first one's out. These are gone.
These are gone. 3,000 of these are gone. But there's 3,000 of these left and 4,000 of these left under our FIFO assumption.
Are they really left? Who knows? No one knows. But this is the assumption we're going to follow.
And so our ending inventory, now we just add these up, is going to be $39,000. I believe that's going to be $40,000. What's our cost of goods sold? That equals available for sale, $111,400, minus the ending inventory, $40,000.
I've got $71,400 under FIFO method. All right. LIFO method ending inventory. But the units don't change. We've got 7,000 units.
That's what we're trying to value, right? Now, the issue is these are the last ones in are the first ones out. So the ones we sold are in this direction. The last ones in, these 4,000 sold, 6,000 sold.
But we're looking for 7,000 units. So we go in the other direction because... If the last one's in or the first one's out, then the first ones in are still there.
And so we've got this $2,000 still sitting in inventory in our assumption. And they cost us $5.30 or a total $10,600. And I'm looking for how many more? I'm looking for $7,000. I've got $2,000.
I'm looking for another $5,000. And they're covered by this, you know, we had enough in that 8,000 bucket to cover all 5,000. So they were at 550. And I multiply that out, 5,000 times 550, 27,500. So under LIFO, our 7,000 units, we'll add these up, 37, 38,100.
Under LIFO. Our ending inventory is going to be valued in dollars at $38,100. What's our cost of goods sold under the periodic method?
Equals available for sale, $111,400 minus $38,100 equal $73,300. $100, $111, $111,400. There's our ending inventory, and this is our cost of goods sold. So cost of goods sold is higher under LIFO, higher than the $71,400 under FIFO.
Why? Because rising prices. So the ending inventory under FIFO was higher because we used the more expensive ones are still there.
And companies use LIFO because they want a larger tax deduction. $73,300 versus $71,400. Don't forget the LIFO conformity rule. If you use LIFO for your taxes, you get that larger tax deduction. You have to, you're required to use LIFO for financial reporting.
Therefore, it's the number one reason people use LIFO. The number one reason my companies that I work for use LIFO. And then finally, the average cost method.
Pretty easy. I take my available for sale, divided by my ending inventory, available for sale units, sorry, not my ending inventory. So here's all the units I started with and bought, 20,000 units, and they cost me $111,400. So what's my average cost for all of those weighted average costs?
So $111,400. divided by $20,000, $5.57. So this is pretty easy. You don't miss it.
Inventory equals the same 7,000, right? Times 5.57, 38,990. And cost of goods sold.
equals 111,400 minus 38,990, 72,410. Notice it's right in between the FIFO and the LIFO. That makes sense.
Hey, I'm just out of curiosity. Let's just see. $72,410.
Cost of goods sold. How many units we sell? 13,000.
5.57. So both the units we sold and the units in the inventory are at the same value. All right. One down.
I'm going to work five problems. This is crazy for me. Making me work.
Let's see. Problem one. Okay. Problem four. Number two, here we go.
Redundancy. It's learning. You know, one thing, I'm going to be good at this.
You know, I don't know about you guys, but I'm definitely going to be good at this at the end. I can go back and do some accounting. So same thing, same approach. By the way, pause where you guys work in these problems.
You got the number two up there on the board. Pause. Go work this and get it right. Okay. Beginning.
Okay. I'm going to pause just for one second to give you guys a chance to hit the pause button. All right.
Now I'm back. You're back. Let's get going here. So beginning inventory. And I'm going to need units.
Pause. per unit and total dollars beginning inventory i've got here 10 000 and they cost me four dollars so i could do that math pretty easily forty uh forty thousand dollars august eight purchase 20,000 units, $4.50. That's pretty easy math too.
$90,000. Next purchase, August 18th. We skipped the sell.
If we were doing the perpetual method, we'd go do a new weighted average. It'd be a lot more work, but we could do it. And I will do one of those problems. Number four, I think it is. So we're going to purchase this time 30,000 units, and those 30,000 cost us $475,000.
Again, like we would normally see, these are rising prices. 30,000 times $475,000 is $142,500. And in August 28th purchase.
We're buying a lot of units. We must be either, hopefully we're selling a lot. Otherwise, our inventory turns from the lecture is going to be really bad.
And we're going to have a lot of inventory. We'll see that in a minute, how they're doing. And these cost $5.
Now, if they see inflation, they may be trying to buy a lot before the costs go up. So they may have a strategic reason to hold inventory. So this is fun. It's all about strategy.
So $40,000 times $5, that's easy, $200,000. Okay. Available for sale.
Remember, that's our first one. We'll take available for sale minus ending inventory to get the cost of goods sold. So 40, 30, 70, 90, 100,000 units. And we add these up, 432, 500. 342, 4, no. I didn't think that was right.
472 500. I'll check my math again. 40 plus 90 plus 142 500 plus 200 472 500. I know my handwriting gets worse as I move along here. That's just the way it is, I guess.
I think yours has two on the exam. So, so units sold. Let's just get that down, right? So we sold the 25,000 units on August 14th and another 25,000 on August 25th.
So we sold 50,000 units and ending inventory, 50,000 units. Those units are agnostic in how much you pay for them. A unit is a unit, right?
And even the operation guys, they don't look here. They're tracking these units, but they all get commingled. So we've got to go do make an assumption.
Same assumption that we always make each year. And let's do the FIFO calculation first. And so I'm looking for, you know, 50,000 units. So ending inventory. And the first ones in, these are the first ones out.
So I got to look backwards. The ones that I purchased last are still there. Why?
Because the first one's in. That's $40,000 times $5 equals $200,000. And I got another 10, 50 minus 40. So I'm going to pull 10 out of those 30 and they cost $475,000. And so that's $47,000. 500. What's my ending inventory value?
$247,500. Cost of goods sold under FIFO? $472,500 minus $247,500 equals $225,000.
All right, next, LIFO, ending inventory. We'll just draw a big line here. All right, I'm still looking for those same 50,000 units. In this case, the last ones in are the first ones out. So I got to go backwards.
I got, these are still there, 10,000 at $4. And then I got another 20,000. I'm at 30,000 now, 10 plus 20, and they were 450. So I'm looking for 50. I found 30. I'm looking for 20,000 more. And I come down, okay, I can take 20,000 of these, and they were at 475. And that math comes out to...
$95,000. What's my total value of ending inventory under LIFO? $225,000. I was just going to check my math.
I have an error. I want to catch it now. So I'm going to have to restart this whole video.
I haven't done that yet. And so I want to keep it that way. Cost of goods sold equals available for sale.
$472,500 minus $225,000 equals to $247,500 under LIPO. Now look, we kind of switched gears here. This was the cost of goods sold, $225,000, and the ending inventory is $247,000.
In this case, The ending inventory is $225,000, and the cost of goods sold is $247,500. Again, why is this higher than FIFO? Raising prices.
Under FIFO, the cheaper ones got sold. Under LIFO, the more expensive ones got sold. Average cost.
Pretty easy. We're going to take... $472,500 available for sale divided by the 100,000 units available for sale.
And we're going to get $4. And I'm going to go ahead and round that to half a penny, $4.72. I guess you could have 4.725. And so in being inventory.
equals 50,000 times 4.725, 236,250. Cost of goods sold equals 472,500 minus 236,250. equals 236,250.
Very interesting. Same thing. Why?
There was 50,000 units sold and 50,000 units in the inventory. You know, that 100,000 that we had available for sale, 50,000 we sold, 50,000 we didn't sell. And so it makes sense under the average cost method because both...
are averaged at the 4.725, we get the same number. When you do a problem on an exam, sometimes it's good to take a step back and see, hey, did that make sense? One thing there I could check to see if it makes sense, and the rising prices like that is my average cost of goods sold in the middle between the LIFO and FICO, which it should be. All right.
Problem number three. Again, could be the same problem. Four, number one, and that's not it.
Ah, number three. I guessed right. There we go.
And get my visualizer back up here and get to work. Same problem again. So consider this the periodic system method. Go to town. Pause the video.
Go work it. Hey, your turn to work. Come on. You've watched me enough there.
So, again, I'll give you a second to pause the video. All right. Welcome back.
Let's get going here. And so, again, we're going to have. units, cost per unit, dollars.
That's what we're trying to get to our balance sheet. Okay. Beginning inventory, problem number three, 50,000 units, cost per unit is $20. and the dollars for that that can multiply that times out is a million five.
No, that is wrong. I knew something was wrong there. 50 times 20 can never be a million five. Let's have a look at that.
Is that a million dollars in beginning inventory? It's a good thing. I'm watching myself along the way. You should do that on the exam, but not with the cheat sheet.
Eight purchases on August 8th. This time we buy 25,000 units and they cost us 25. That's a significant increase in price. That's kind of like the world that we're living in right now. And so that's going to be 625,000.
Next, August 18th, purchases, $32,000. And we paid $35,000 for those, $1,032,000 times $35,000, $1,120,000. And finally, on August 28th.
40,000 units at 35 million four. That's some big numbers on this problem. So how many units are available for sale? I believe it's 90, 50, 75, 107, 100. No, that's not right.
Okay, let me see. 50 plus 25 plus 32 plus 40, 147,000 in total dollars, a million plus 625 plus 1,120,000 plus 1,400,000, 4,145,000. sold and this is for our units figure that out on august 14th we sold 50 000 and august 25th we sold 20 000 so we sold 70 000 in the inventory 77 000 value that's what we had to go figure out right Let's start here.
FIFO, ending inventory. I know I've got 77,000 ending inventory. And so first one's in, first one's out. So I'm going to start back here. I've got 40,000 at $35.
I got 32,000 still there at $35. And so 77, I found 72,000. I'm looking for another 5,000 go up.
Okay, I got to pull 5,000 out of that 25,000. And they were only 25,000. Now I'm just going to multiply all of these out.
This is the same. We've got all of those and 1,120,000. We got all of those. And then we need 5,000.
times 25 125 000. yeah that makes sense okay so we sold there's our 77 000 units not sold in ending inventory and then our math here if you add all these up you get 2 million and that's inventory we've calculated. So cost of goods sold available for sale, 4145 minus 2645, and our cost of goods sold equals a million five. Nice, even, round number.
LIFO, okay? ending inventory again we're still looking for that 77 000 units but this time um the last ones in are the first ones out so these down here have been sold so we got to come this way we got 50 000 at 20 and we got 25 000 at 25 and so i'm i got 75 000 accounted for i'm looking for 2 000 more come this way i pick it out of these 32 000 and uh 35 now it's just a matter of just doing the math uh this is worth a million this is worth 625 i've already done that math up here by the way and i need 2 000 um times uh 35 that's only 70 000 that's easy math now Add it all up. My ending inventory, 77,000 units. I'm trying to answer the question, how much are they worth?
And I add these up and I get 1,695,000. Cost of goods sold equals available for sale, 4145 minus 1,695,000. equals $2,450,000. Wow, look at that.
Significantly more. And we had some pretty significant price increases from 20 and 25 up to 35 towards the end of this month. I think we're calculating, must be calculating for a month.
And so, oh, wow, much bigger tax deduction. I pay less taxes as a company. under LIFO and FIFO. And finally, average cost, I got that's an easy one, $4 million, all the available per cell dollars divided by the available per cell units.
I calculate that out, 4145.47 equals 28. Point one nine seven. You can go out to more decimal places if you want. And so I've got ending inventory, 77,000 units times the average cost, 28.197, 2,171,000. My spreadsheet had a little bit different number because it's rounded even better than I did, probably.
And then my cost of goods sold equals available for sale. All that we could have sold was valued at $4,145,000 minus what's in our ending inventory that's still around. So, you know, you can say what's missing is that's what we sold. And that answer, let's see, 4145, 2,171,169 minus 1,973,831 cost of insult. Now, I would say, you know, there could be some rounding differences here if you're working this.
And if you're doing one of my exams. I'm not counting off a rounding. I'm looking that you get it conceptually correct. And I notice in my spreadsheet, which is on Canvas for my students, the answer was 1, 9, 7, 3, 8, 10. You know why?
My spreadsheet rounds us out to a lot more digits than I did. So it's a slightly different answer when you get to these big numbers in the millions of dollars. All right, guys, that's problem three. Now, this is going to be. you know really my least fun work right here for sure uh and and i'm sure if you have to do one of these in the exam uh it would be your least work and this is uh assuming a perpetual inventory system and so this is going to be you know a bit different here um you know perpetual what happens the perpetual system as a reminder um the system is uh recording uh you Every transaction, every time we purchase something, it just automatically debits inventory and credits accounts payable or cash, however we purchase that inventory.
And it recalculates a weighted average, the cost of the inventory right after every single purchase, a moving kind of weighted average. And so that's why I say, oh, man, I don't want to do this problem. Now, I'm only going to do the average cost method.
I'm not going to do the buy. FIPO method, I'm not going to worry about that. And I think the average cost is probably a little more interesting. If you think about any of these, it's like we did at the end of the month, we're doing it for every single transaction.
So it can become a lot. So we still have units, cost per unit, and then... So the same kind of headings, if you will.
Beginning inventory, we have in this problem, $2,000, cost per unit of $530, or $10,600. August 8th purchase. 8,000 units at 550. Let's multiply that out. I've already done that over here.
Is 44,000. Just going to check my math. 44,000. Now, guess what? This is perpetual.
We've got to go calculate a weighted average. We've got 10,000 units, 54,600. So we take 54,600 and we divide that by the 10,000 and that's $5.46. And that number just equals. 54. 600 divided by 10,000.
So that system now, and you don't have accountants doing this every time you come to buy something, the system does this for us. So 814 sell. We sell 6,000 units and we're going to record cost of goods sold is going to equal $6,000 times $5.46. So the cost of goods sold would be $6,000, $32,000, $760,000.
New balance. We've got $10,000 minus $6,000 that we sold, $4,000. we're still using the 546. So 4,000, if we looked at the running balance in inventory, it would be 21,840. So the system, you can look at the system in a perpetual system any day, any hour, and see what's the dollar value and what are the units in inventory. So it's a pretty cool thing.
And again, most companies have this. On August 18th, we have a purchase. And this time we're going to purchase 6,000 units, $5.60.
And we're going to take that across and extend that 6,000 times 5.6 times 33. 600. Yes, what we're going to do, we're going to go calculate a weighted average because we have 6,560 and 4,460. So let's go calculate this out, 21,840. Oh, that's not right. And that's going to be 55, 440. New weighted average, 55, 440 divided by 10,000 equals $5.
And 54, I'm going to put the other third decimal at $5, 54.4 cents. And again, that number is just total dollars. and ending inventory divided by the units.
And that gets us through August 18th. Now we're at August 25th. This time we're going to sell 7,000 units and cost of goods sold is going to equal 7,000 times our new weighted average. 38, 808. Now what's our new balance? We had 10,000 before we sold the 7,000.
So then when we got 3,000 left, they're still at the 5.544 cents. 16,632. That's our ending inventory balance. We're ready for the next one.
I think we're getting close to the end. August 28th, we are going to purchase some more. 4,000 at 580. 23,200 again.
New balance again. We've got 7,000 units on hand, and we're going to go calculate the average new weighted average. And so we've got 16, 632, 39, 832, and take 39, 832 divided by 7,000.
$5.69. By the way, there is our ending inventory balance, $39,832 to the balance sheet. What's our cost of goods sold? Okay, we've got $32,760.
plus 38,800. We only had two sales tracks. So cost of goods sold for the month equals 32,760 plus 38,808,71568. So that would be, you can see a multiple choice on this for sure. if not a problem, but see how the perpetual system works differently.
Because every time there's a transaction, there's like a new calculation. So it's perpetual. It's perpetually updating the inventory.
Everything gets recorded in the inventory directly. And so, you know, I go into that in more in-depth in my lecture on inventory. And so now we're going to the last problem.
And, you know. I, gosh, I shouldn't say it, but I do kind of like LIFO calculations. I had to do a lot of them. And so, again, this is a dollar value LIFO problem. A very simple one, by the way, but that's okay.
And so in dollar value LIFO, you know, it's a simplified method. That's what textbooks say. I call it kind of a shortcut, if you will.
It is still of. you know, the goal is to reflect what LIFO would have been if we'd attract every unit, you know, back in a lot of these LIFOs started in the 70s, you know, so you might have a 1970 cost still sitting in your inventory of a LIFO. And that's why the LIFO balance is usually far lower than the FIFO balance. And so in this case, what happens, company keeps running on FIFO, or average cost method all year, and at the end of the year, Few accountants, very few, sit back in a back room somewhere, and they calculate what LIFO would have been if we'd have been using LIFO.
And they have some shortcuts that GAAP allows and the IRS allows to get you there. One of these is called the dollar value LIFO. There's a pooling method, but you still have to track units under the pooling method.
And this one, the beauty of it is you just look at dollars. You don't even track any of your units anywhere. And you go.
calculate your unit. So let's just see how this would look. So year one, let's call this the base year, the first year that we started doing LIFO, we've got $660,000 in inventory, LIFO index is 1.0, and we got $660,000. So basically, one thing I would say is, in this year, LIFO and FIPO are exactly the same. It's the very first year.
From here on, it's going to start tracking differently. Because why? Inflation.
And we can see in this problem, inflation is up 4%, and then 8% versus the first year. And these inflation indexes, they're like the CPI. And in some cases, if you thought truly that the CPI index reflected your inventory, you might be able to use something like CPI. You could use kind of an external.
Not what we did where I worked because we did not believe that was going to look what our copper and steel and our inventory would be worth. So we would take two units, you know, on the same unit that we sold last year and this year. And we took like maybe a few hundred, maybe a thousand of these side by side. We look and see how much the cost changed year over year.
We would calculate our year-over-year index. That would then be translated back to what the... index would be from the base year.
But we use actual data. You've got to support this. You can't just be like guesstimating this because not only could you be audited by your auditor, a public accounting firm, you could be audited by the IRS.
And plus, hopefully, you'll be CPAs like me. And you're going to want to get this right because you have a lot of ethics. And so that's how you do this.
So here, the numbers are just given to us. And so year two, Step one, and we say year two inventory is 690,000. And that's on the whatever basis, FIFO or whatever, nominal basis.
And so then at base year cost, it's going to be 690,000 divided by the new index 1.04. So 690,000. divided by 1.04, 663, 462. Now, what is this telling us?
This saying, hey, if we had bought all the products we have on hand at the end of the year, at the same price as we paid last year, then we'd have 663, 462 on our books. And look what's happened here. there's been an increase in units, an increase not due to inflation, not due to cost increases, an increase in units. And so we're going to now do layers at base year. We've got 660,000 at 1.0.
We've got now a new 3,462. This is a new layer. And we put that at the current cost. This is an increase in units at the new prices, 3,462 times 1.04 equals to 33,600.
And so therefore. Our LIFO value is now $63,600. By the way, our LIFO reserve, we may just keep that on our books and call it LIFO reserve.
The difference between these two, $690,000, would be $26,400. So we may have on our books, in the background, in a spreadsheet, or in an account. FIFO account 690, a LIFO reserve of 26,400.
And then we would net these. What would go on our balance sheet, though? Only one thing, that, 663,600.
In our footnote, we would explain that that balance is based on LIFO. So it's important that we, the inventory footnote, especially if you have a lot of volatility in cost, because a company on LIFO versus a company on FIFO, who are you reporting on different gross margins? for the same kind of activity.
So it's important to go look at these. Let's do one more year, year three. And I've got year three, they tell us $760,000.
And that's on whatever, I'm gonna say FIFO, but whatever basis is, that's what's in our books, 760. So what is that at base year? If we had that 760 back in the very first year, it would have been 760 divided by 1.08, 703,704. Okay, well, got another layer. you know, from the 663 in LIPO last year in base year cost, 703. How much is that layer? 703, 704, 63, 600 minus.
It would be that would be 40,104 again at the base year costs. But this new layer, though, we value it at. current costs because it's a new purchases if you will and so year three let's just do our layers one at 1.0 we still have our layer two from last year um which was the uh 3462 at 1.04, 3,600.
And we've got a new layer, 40,104 at 1.08, 4,104. I'm getting a different number than my spreadsheet. I'm trying to figure out why. 760, 703, 704. I'll make sure I got my math right.
703, 704, 40, 104. And I'm sure, well, 42, 42. Now, why is that? I'm going to check this one thing. Sorry about this, guys. Oh, I know. I'm sorry.
I do have an error here and I'm glad I had it. So this is the new base year. We've got to compare it back to the total base year costs, which were 663,462. So 703, 703, 704 minus 663 is 4242. So again, we're trying to get back to. comparing, you almost have two columns, when you have a spreadsheet, you have two columns.
So our base year costs are $663,462. So we're expressing everything here on this side at base year. And so if you add all of these three pieces up, $663,462, $703,700.
four. So this is important that you keep your base year. So you're the new layer is based on base year layers, because this is expressed in base years. And this is expressed in the base year cost. That number is not expressed in a base year cost is added the new layer.
So in order to look apples to apples, I got to do 703 704 minus 663 462 to come up with my new base year layer. And so this number equals 703, 704 minus 663, 462. So I've got my base year now at one point. But that's not what's going to go in my books.
Base year is not going to go in my books. I'm going to now extend out this new layer, 40 to 42 times 1.08, 43, 4. 707-061. Add these all together. 707-061.
Now, that's the right answer. I do apologize. I'm probably just confused you to death.
But again, go back, you know, again, everything. The new layer is at the base year layer, apples to apple, base year, base year. And then this change is base year, 703, 704 minus that 663, 462. This is the LIFO value that will go on our books. This is just part of the base year calculations.
And so this becomes ending. inventory at LIFO on the balance sheet. Yes, very complicated calculation, again, but easier than trying to track every unit last in, first out.
That would be nearly impossible in these high volume companies. And so guys, boy, that's... That was a lot of work for me.
And so hopefully you were pausing and working some of these. I especially say those first three problems are really important to be able to do those on my exams for sure. Where the other two, problem four and five, probably end up on a multiple choice somewhere.
So not end of the world, miss one of the multiple choice, I guess. But if you're going for 100 and I want you to go for 100, you know, knock this down. And again, any confusion around the problem they work, put the textbook out.
go back and look at it. The textbook is your friend. And my friends, my friends here on watching this video, thank you for putting up with me here.
This is a lot of work and I hope that you learned something. Thank you.