The ending inventory for the last time period of your model is the ending Safety Stock for that warehouse during the last time period (summed over all products).
Instead, at the end of the period, the business makes a physical count of the inventory on hand and applies the unit cost to determine the cost of ending inventory.
Using the same data as in the preceding illustrations the cost of 18 units in the ending inventory is determined as follows...
The method of pricing inventory is required to identify the units in the ending inventory as coming from specific purchases.
the cost of the ending inventory may be computed as follows...
The cost of goods sold during the period is determined by subtracting the ending inventory from the cost of goods available for sale…
A systematic count of all goods on hand, followed by the application of unit prices to the quantities counted and development of a dollar valuation of the ending inventory.
Hence the ending inventory consists of old goods in the earliest purchase.
When prices for like items change during the accounting period, it is not always apparent which price should be used to measure the ending inventory.
When the periodic inventory is being used, a physical inventory must be taken to determine the amount of the ending inventory.
The physical count establishes the correct amount of ending inventory and serves as a check on the perpetual records.
Determination of ending inventory by the retail method is illustrated as follows...
By comparing the results obtained from the four methods illustrated above, let us summarize the amounts computed for ending inventory, cost of goods sold and gross profit on sales under each of the four methods.
Cost of goods sold at the current period is computed by subtracting the cost of ending inventory from the cost of goods available for sale.
applying cost ratio to ending inventory
It usually will be advantageous to price out the ending inventory (and assign the residual amount to the cost of goods sold) because the ending inventory will involve fewer units than the cost of goods sold.
Consequently, a physical inventory must be taken in order to determine the cost of the ending inventory at the end of an accounting period.
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