## Notes on Inventory

For any inventory account, there will be a beginning balance, an amount coming in, an amount leaving the account to go somewhere else, and an ending balance. Here's the relationship:

BEGINNING BALANCE + WHAT CAME IN - WHAT WAS TRANSFERRED OUT = ENDING BALANCE

For a merchandising company, the formula would look like this:

BEGINNING BALANCE + COST OF GOODS PURCHASED - ENDING INVENTORY = COGS
If Johnson Company had beginning inventory of \$20,000 and purchased an additional \$80,000 of inventory during the year, what was the cost of goods available for sale? If the ending inventory for the year was \$14,000, what was the Cost of Goods Sold for the year?

OLSON MANUFACTURING COMPANY HAS THREE INVENTORIES

## 1. RAW MATERIALS

Olson started on January 1 with raw materials of \$16,700. They purchased an additional \$152,500 of raw materials. On December 31, they had a balance of \$22,800 of raw materials. Can you determine the amount of raw materials they used?

## 2. WORK IN PROCESS

Olson started on January 1 with WIP of \$18,400. The direct materials cost for the year was \$146,400; Direct Labor was \$175,600; and Manufacturing Overhead was \$54,800. The ending balance of WIP for the year on December 31 was \$25,200. Can you compute the amount that was transferred out of Work in Process?

## 3. FINISHED GOODS

For a manufacturer:

BEGINNING BALANCE + COST OF GOODS MANUFACTURED - ENDING INVENTORY = COGS

Olson started the year on January 1 with Finished Goods of \$40,000. Cost of Goods Manufactured for the year was \$370,000. The ending balance of Finished Goods on 12/31 was \$50,000. Can you compute the Cost of Goods Sold?