In this example, I want to cover how to value inventory using specific-unit costing.
We make no cost flow assumptions with this method
so you are going to be given the exact items sold and the exact items remaining in inventory.
Let's assume the following inventory data:
March 1st - Beginning Inventory is 200 units @ $10 each.
March 4th - we purchased an additional 300 units @ $20 each.
March 10th - we sold 400 units @ $50 each. Now that's the retail price, not the cost.
The cost of the units sold came from March 10th: 100 units @ $10 each & 300 units @ $20 each.
We'll use this information when we record the March 10th sale in the journal.
Continuing, March 20th we purchased an additional 500 units @ $30 each.
March 25th sold 300 units @ a price of $50 each.
The cost of the units sold on March 25th were 50 units @ $10 & 250 units @ $30 each.
We'll use this information when we record the March 25th sale in the journal.
Finally March 30th we purchased 100 units @ $40 each.
With this data and using specific-unit costing, let's record the March 10th and 25th sales as well as determine the value of ending inventory.
If you want to pause the video at this moment and write these numbers down I would encouage you to do that.
In order to record the March 10th sale,
we need to figure out the sales revenue amount and the cost of goods sold.
We sold 400 units @ $50 each, so sales revenue is $20,000.
The cost of the 400 units sold is $7,000. I know this because the cost is 100 units @ $10 and 300 units @ a cost of $20. That total $7,000.
So we debit Accounts Receivable (let's assume they were sold on account)
and credit Sales Revenue for $20,000, the retail price of the goods.
We also debit COGS and credit Inventory for the cost of the inventory sold, which is $7,000.
In order to record the March 25th sale, we need to figure out the sales revenue amount and the cost of goods sold.
We sold 300 units @ $50 each, so sales revenue is $15,000.
The cost of the 300 units sold is $8,000. I know this because we sold 50 units @ $10 and 250 units @ $30. Those total $8,000.
So we debit Accounts Receivable and credit Sales Revenue for $15,000.
We also debit COGS and credit Inventory for the cost of the inventory items sold, which is $8,000.
Now let's figure out the value of ending inventory.
Since we are given the amounts in ending inventory, just total the units, in this case 400 units,
and total the value of the units, in this case $12,000, and that's the value of the ending inventory.
Finally, if we were completing a Perpetual Inventory Record, you can see the purchases were entered in the purchase columns.
The units sold are recorded, and notice that they are the same total as the COGS we already computed.
Finally ending inventory is a running total that results in 400 units of inventory with a cost of $12,000.
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