principles-of-costing-inventory

Inventory Valuation
Activity Workbook
Purchase order
1
Inventory valuation
2
Whiteboard Activity 2
Rashid runs a computer supplies company. One of the items he sells is the
‘Zap’ data disk.
You are required to show how the inventory records would appear under FIFO,
LIFO, AVCO, and the closing inventory valuation at 31 May 20X7, the following
data is used for each method:
 January Opening inventory of 40 units at a cost of £3.00 each

 February Brought 20 units at a cost of £3.60 each
 March Sold 36 units for £6 each
 April Bought 20 units at a cost of £3.75 each
 May Sold 25 units for £6 each
What will be the profit for the period using each inventory valuation method?
3
Date Receipts Issues Balance
Qty Cost per Total Qty Cost per Total Qty Cost per Total
item Cost item Cost item Cost
£ £ £ £ £ £

£ £ £ £ £ £
4
£ £ £ £ £ £
Rashid’s Profit comparison (FIFO, LIFO and AVCO)

FIFO £ LIFO £ AVCO £
Revenue (61 units @ £6)
Opening inventory
Purchases:
Closing inventory
5
_____ units
Cost of sale
Gross profit
Conclusion
AAT exam style question
6
Activity 3 – Scully Ltd
Scully Ltd has the following movements in a certain type of inventory into and out of it
stores for the month of June:
Date Receipts Issues
Units Cost Units Cost
June 2 100 £400
June 3 200 £1,000
June 6 200 £1,200
June 19 400
June 25 400 £2,500
Complete the table below for the issues and closing inventory values.
7
Method Cost of issues on 19 June Closing inventory at 30 June
FIFO
LIFO
AVCO
Activity 4 – Jet Ltd

Jet Ltd has opening inventory of raw material X of 1,500 units at £2 per unit. In
the month another 1,000 units at £4.50 are received and the following week
1,800 units are issued.
Statement True False
FIFO values the closing inventory at £1,400
LIFO costs the issues at £6,100
AVCO costs the issues at £5,400
Activity 5 – Petra Ltd

Petra Ltd has the following movements in a certain type of inventory into and out of it
stores for the month of May:
Date Receipts Issues
Kg Price/kg Cost Kg Cost
May 1 200 £9.00 £1,800
May 2 100 £10.80 £1,080
May 3 50
Complete the table below for the issues and closing inventory values.
Method Cost of issues on 3 May Closing inventory at 3 May
FIFO
8
LIFO
AVCO
Activity 6 – Storm Ltd

Storm Ltd has opening inventory of raw material P of 3,000 units at £4.50 per
unit. In the month another 2,000 units at £7 are received and the following
week 3,750 units are issued.
Identify the valuation method described in the statement below by putting a
tick in the relevant column.
Statement FIFO LIFO AVCO
The closing inventory is valued at £6,875.
The issues of 3,750 units are costed at £18,750.
The issue of 3,750 units is costed at £21,875.
Activity 7
Identify the correct inventory valuation method from the characteristics given
by putting a tick in the relevant column of the table below.
Characteristic FIFO LIFO AVCO
Issues are valued at the most recent purchase
cost.
Inventory is valued at the average of the cost of
purchases.
Inventory is valued at the most recent purchase
cost.
Activity 8
9
Identify the following statement as either true of false.
Statement True False
FIFO costs issues of inventory at the most
recent purchase price.
AVCO costs issues of inventory at the oldest
purchase price.
LIFO costs issues of inventory at the oldest
purchase price.
FIFO values closing inventory at the most
LIFO values closing inventory at the most
AVCO values closing inventory at the latest
purchase price
Activity 9 – Jackson
Jackson starts a new business as a retailer at the beginning of January and
records the following movements of inventory during the first week of trading.
Date Purchases Sales
Units Price/unit Cost Units Price/unit
Jan 3 400 £18.00 £7,200
Jan 5 200 £21.60 £4,320
Jan 7 250 £40.00
There was no opening inventory at the start of the week as it is a new business.
The value of closing inventory at the end of the week, using the different
valuation methods, is:
10
 FIFO - £7,020
 LIFO - £6,300
 AVCO - £6,720
Required:
Calculate the gross profit for each of the valuation methods.
FIFO LIFO AVCO
Sales £10,000 £10,000 £10,000
Cost of sales:
Opening inventory
Purchases
Closing inventory
Gross Profit
AAT Level 2 Principles of costing – Inventory valuation – Week 4- VRG
11

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Inventory Valuation

 January Opening inventory of 40 units at a cost of £3.00 each

Date Receipts Issues Balance

Rashid’s Profit comparison (FIFO, LIFO and AVCO)

AAT exam style question

Date Receipts Issues

Units Cost Units Cost

June 2 100 £400

June 3 200 £1,000

June 6 200 £1,200

June 25 400 £2,500

Activity 4 – Jet Ltd

Activity 5 – Petra Ltd

Date Receipts Issues

Kg Price/kg Cost Kg Cost

May 1 200 £9.00 £1,800

May 2 100 £10.80 £1,080

Method Cost of issues on 3 May Closing inventory at 3 May

Activity 6 – Storm Ltd

AAT Level 2 Principles of costing – Inventory valuation – Week 4- VRG

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