Inventory Costing Methods (Periodic Inventory System)
This problem-based learning activity helps students apply inventory cost flow methods under a periodic inventory system. Students determine the value of the ending inventory and cost of goods for biology lab microscopes sold by a fictitious entity, Science Education Supplies, Inc. The four methods included are: specific identification, weighted average cost, first-in first-out (FIFO), and last-in first-out (LIFO). In addition, they compare and contrast how applying the different costing methods affects the balance sheet and income statement.
- Compare the cost of goods sold and ending inventory cost using the specific identification, weighted average cost, first-in first-out (FIFO), and last-in first-out (LIFO) inventory costing methods.
- Compare and contrast the affect of using different inventory costing methods on the income statement and balance sheet.
Context for Use
This activity provides practice for students to apply concepts associated with
reporting and analyzing inventories in a typical principles of financial
accounting course. This worksheet is designed to be used after each of the four periodic inventory costing methods: specific identification, weighted average cost, first-in first-out (FIFO), and last-in first-out (LIFO), have been covered in class. Positioning generally occurs after students have been studied merchandising operations and are ready to begin learning about reporting and analyzing inventory. Other prerequisite knowledge includes a working understanding of the basic accounting equation, the relationship between the balance sheet and income statements, and the importance of the matching principle.
The worksheet can be used in a variety of ways:
- As an in-class activity with each major section of the worksheet completed by students after each inventory costing method has been covered.
- As a culminating in-class activity after all four methods have been covered in class.
- As a homework assignment completed outside of class for homework points.
Description and Teaching Materials
- Inventory Costing Student Worksheet (2 pages) Inventory Costing Student Handout (Excel 2007 (.xlsx) 12kB Apr10 12)
- Inventory Costing Solution Inventory Costing Worksheet Solution (Excel 2007 (.xlsx) 13kB Apr10 12)
Teaching Notes and Tips
Students enrolled in principles of accounting courses also need to build self-confidence in their ability to grasp the concepts being learned. Implementation options 1 and 2 help achieve this goal by providing immediate feedback to students.
Note: This worksheet has not been designed for use in an interactive, online, environment. However, it could be adapted to this mode of instruction depending on the instructor's creativity and knowledge online development tools. This practice activity could possibly be input as an independent formative assessment by using the quiz/test features of a Learning Management System.