Lesson Plan 7.6 – How Much Inventory?
Course Title – Accounting I
Session Title – Plant Assets and Depreciation
Lesson Purpose – Demonstrate skill in calculating inventory using different
methods.
Behavioral Objectives



Define accounting terms related to inventory.
Calculate the cost of inventory using First In/First Out, Last In/Last Out
and Weighted-Average costing methods.
Estimate cost of merchandise inventory.
Preparation
OLD TEKS Correlations:
2010 TEKS Correlations:
This lesson, as published, correlates
to the following TEKS. Any
changes/alterations to the activities
may result in the elimination of any or
all of the TEKS listed.
120.42.C.4.d. record inventories;
7.a. follow oral and written
instructions;
7.b. develop time management skills
by setting priorities for completing
work as scheduled.
7.c. make decisions using
appropriate accounting concepts;
7.e. perform accounting procedures
using manual and automated
methods;
7.g. demonstrate use of the numeric
keypad by touch
This lesson, as published, correlates
to the following TEKS. Any
changes/alterations to the activities
may result in the elimination of any or
all of the TEKS listed.
130.166.C
8.a. – record inventory usage
TAKS Correlation:
WRITING
Objective 5: The student will produce a piece of writing that demonstrates a
command of the conventions of spelling, capitalization, punctuation, grammar,
usage, and sentence structure.
Objective 6: The student will demonstrate the ability to revise and proofread to
improve the clarity and effectiveness of a piece of writing.
Lesson 7.6 – How Much Inventory?
Copyright © Texas Education Agency, 2011. All rights reserved.
ACCOUNTING 1
MATH
Objective 10: The student will demonstrate an understanding of the
mathematical processes and tools used in problem solving.
Materials, Equipment and Resources:





Textbook
Accounting Software
Journal Input Forms
Spreadsheet Software
Internet
Teaching Strategies:



Observation
Verbal Drills
Demonstration
Lesson Content:
This lesson includes instruction on using different methods of calculating cost of
inventory and on learning to estimate cost of merchandise inventory.
Assessment:


Observation
Graded Assignments
Lesson 7.6 – How Much Inventory?
Copyright © Texas Education Agency, 2011. All rights reserved.
ACCOUNTING 1
Additional Resources:
Textbooks:
Guerrieri, Donald J., Haber, Hoyt, Turner. Glencoe Accounting RealWorld Applications and Connections. Glencoe McGraw-Hill, 2000.
ISBN/ISSN 0-02-815004-X.
Ross, Kenton, Gilbertson, Lehman, and Hanson. Century 21 Accounting
Multicolumn Journal Anniversary Edition, 1st Year Course. SouthWestern Educational and Professional Publishing, 2003.
ISBN/ISSN: 0-538-43524-0
Ross, Kenton, Gilbertson, Lehman, and Hanson. Century 21 General
Journal Accounting Anniversary Edition, 7th Edition. SouthWestern Educational and Professional Publishing, 2003.
ISBN/ISSN: 0-538-43529-1.
Websites:
FIFO/LIFO. Internal Revenue Service, 2009.
http://www.irs.gov/businesses/small/industries
Business Partners:


Loan officers from a bank
Collection Agency officer
Lesson 7.6 – How Much Inventory?
Copyright © Texas Education Agency, 2011. All rights reserved.
ACCOUNTING 1
Activity 7.6.1 – Calculating Depreciation Using DecliningBalance Method
Course Title – Accounting I
Session Title –Plant Assets and Depreciation
Activity Purpose - Identify terms related to inventory.
OLD TEKS Correlations:
2010 TEKS Correlations:
This lesson, as published, correlates to
the following TEKS. Any
changes/alterations to the activities may
result in the elimination of any or all of
the TEKS listed.
120.42.C
7.a. follow oral and written instructions;
7.b. develop time management skills by
setting priorities for completing work as
scheduled;
This lesson, as published, correlates to
the following TEKS. Any
changes/alterations to the activities may
result in the elimination of any or all of
the TEKS listed.
130.166.C
N/A
TAKS Correlation:
WRITING
Objective 5: The student will produce a piece of writing that demonstrates a
command of the conventions of spelling, capitalization, punctuation, grammar, usage,
and sentence structure.
Objective 6: The student will demonstrate the ability to revise and proofread to
improve the clarity and effectiveness of a piece of writing.
Materials, Equipment and Resources:


Textbook
Internet
Teaching Strategies:

Observation
Activity Outline:
1. Have students define these terms:
periodic inventory
stock record
perpetual inventory
stock ledger
last-in-last out inventory
costing method
consistency principle
weighted-average inventory
costing method
conservatism principle
inventory record
first-in, first-out
inventory costing
method
gross profit method of
estimating inventory
market value
2. Locate online or create an Inventory Terms presentation to drill students on
terms related to inventory.
Activity 7.6.1 – Calculating Depreciation Using
Declining-Balance Method
Copyright © Texas Education Agency, 2011. All rights reserved.
ACCOUNTING 1
Assessment:


Observation
Graded Assignment
Quality Feature
Definitions thorough and accurate.
Verbal drill using slide show demonstrates knowledge of
terms.
Completes in a timely manner.
Activity 7.6.1 – Calculating Depreciation Using
Declining-Balance Method
Score
Copyright © Texas Education Agency, 2011. All rights reserved.
ACCOUNTING 1
Activity 7.6.2 – Calculating Inventory Cost Using FIFO
Course Title – Accounting I
Session Title –Plant Assets and Depreciation
Activity Purpose -. Develop skill in calculating inventory cost using first-in, first-out
inventory costing method.
OLD TEKS Correlations:
2010 TEKS Correlations:
This lesson, as published, correlates to
the following TEKS. Any
changes/alterations to the activities may
result in the elimination of any or all of
the TEKS listed.
120.42.C
4.d. record inventories;
7.a. follow oral and written instructions;
7.b. develop time management skills by
setting priorities for completing work as
scheduled;
7.c. make decisions using appropriate
accounting concepts;
7.g. demonstrate use of the numeric
keypad by touch
This lesson, as published, correlates to
the following TEKS. Any
changes/alterations to the activities may
result in the elimination of any or all of
the TEKS listed.
130.166.C
8.a. – record inventory usage
TAKS Correlation:
MATH
Objective 10: The student will demonstrate an understanding of the mathematical
processes and tools used in problem solving.
Materials, Equipment and Resources:



Textbook
Spreadsheet Software
Internet
Teaching Strategies:


Observation
Verbal Drills
Activity 7.6.2 – Calculating Inventory Cost
Using FIFO
Copyright © Texas Education Agency, 2011. All rights reserved.
ACCOUNTING 1
Activity Outline:
1. Using the following information, demonstrate calculation using the FIFO cost
of merchandise method.
A periodic inventory of the 128 MB USB Flash Memory Key Storage was conducted
on December 31. It showed 32 items on hand of stock number G1001. The
following is other purchase information for the item:
Purchase Dates
Units
Jan. 1, beginning inventory
Feb. 1, purchases
May 4, purchases
August 21, purchases
October 30, purchases
Totals
2
45
20
50
25
142
Unit
Price
$15.00
$14.00
$13.00
$12.00
$10.00
Total Cost
$30.00
$630.00
$260.00
$600.00
$250.00
$1,770.00
2. Calculation of 32 Memory Key Storage units:



Use most recent price first: October 30 purchases 25 @$10.00 =
$250.00
There were 32 units. 32 – 25 = 7 units left to price. The next most recent
prices were from the August purchase of $12.00 each. 7 @ $12.00 =
$84.00.
The cost of the inventory is $250.00 + $84.00 = $334.00
3. Have your students create a similar chart in a spreadsheet for 5 different
items, calculating the cost of inventory for each item. Have them go to the
Internet to locate model numbers on five items they want to use. Have them
use a logical price based on the current retail price. They also decide on
how many they would have purchased during the fiscal period and how
many they have left. At the bottom of each spreadsheet, have your students
place a link to the Web site where they received their information for the
item.
Assessment:


Observation
Graded Assignment
Quality Feature
Student participates in demonstration and accurately answers
any verbal questions
Design of spreadsheet clear and effective for the project
Amounts used realistic
FIFO method of calculating cost of inventory accurately used
Web site links provided on each spreadsheet
Completes in a timely manner.
Activity 7.6.2 – Calculating Inventory Cost
Using FIFO
Score
Copyright © Texas Education Agency, 2011. All rights reserved.
ACCOUNTING 1
Activity 7.6.2 – Calculating Inventory Cost
Using FIFO
Copyright © Texas Education Agency, 2011. All rights reserved.
ACCOUNTING 1
Activity 7.6.3 – Calculating Cost of Inventory Using LILO
Method
Course Title – Accounting I
Session Title –Plant Assets and Depreciation
Activity Purpose - Demonstrate skill in calculating cost of inventory using the Last
In, Last Out method.
OLD TEKS Correlations:
2010 TEKS Correlations:
This lesson, as published, correlates to
the following TEKS. Any
changes/alterations to the activities may
result in the elimination of any or all of
the TEKS listed.
120.42.C
5.a. compare the various forms of
business organizations;
5.b. list advantages and disadvantages
of each form of business organization;
5.c. identify the various accounting
functions involved with each form of
business organization;
7.a. follow oral and written instructions;
7.b. develop time management skills by
setting priorities for completing work as
scheduled;
This lesson, as published, correlates to
the following TEKS. Any
changes/alterations to the activities may
result in the elimination of any or all of
the TEKS listed.
130.166.C
8.d. – determine the cost of inventory
TAKS Correlation:
MATH
Objective 10: The student will demonstrate an understanding of the mathematical
processes and tools used in problem solving.
Materials, Equipment and Resources:


Textbook
Spreadsheet Software
Teaching Strategies:


Observation
Verbal Drills
Activity 7.6.3 – Calculating Cost of Inventory
Using LILO Method
Copyright © Texas Education Agency, 2011. All rights reserved.
ACCOUNTING 1
Activity Outline:
1. Using the following information, demonstrate calculation using the LILO cost
of merchandise method.
A periodic inventory of the 128 MB USB Flash Memory Key Storage was conducted on
December 31. It showed 32 items on hand of stock number G1001. The following is other
purchase information for the item:
Unit
Total
Purchase Dates
Units
Price
Cost
Jan. 1, beginning inventory
2
$15.00
$30.00
Feb. 1, purchases
45
$14.00
$630.00
May 4, purchases
20
$13.00
$260.00
August 21, purchases
50
$12.00
$600.00
October 30, purchases
25
$10.00
$250.00
Totals
142
$1,770.00
2. Demonstrate calculation as follows:
Purchase Dates
Jan. 1, beginning inventory
Feb. 1 purchases
Total for 32 units
Units
2
30
32
Unit Price
$15.00
$14.00
Total Cost
$30.00
$420.00
$450.00
3. Have students recalculate their 5 items from the previous exercise, using the
LILO method of cost of inventory.
Assessment:


Observation
Graded Assignment
Quality Feature
Student participates in demonstration and accurately answers
any verbal questions
Design of spreadsheet clear and effective for the project
Amounts used realistic
LILO method of calculating cost of inventory accurately used
Web site links provided on each spreadsheet
Completes in a timely manner.
Activity 7.6.3 – Calculating Cost of Inventory
Using LILO Method
Score
Copyright © Texas Education Agency, 2011. All rights reserved.
ACCOUNTING 1
Activity 7.6.4 – Calculating Inventory Cost Using WeightedAverage Method
Course Title – Accounting I
Session Title –Plant Assets and Depreciation
Activity Purpose - Develop skill in calculating inventory cost using weightedaverage method of inventory cost.
OLD TEKS Correlations:
2010 TEKS Correlations:
This lesson, as published, correlates to
the following TEKS. Any
changes/alterations to the activities may
result in the elimination of any or all of
the TEKS listed.
120.42.C
4.d. record inventories;
7.a. follow oral and written instructions;
7.b. develop time management skills by
setting priorities for completing work as
scheduled;
7.c. make decisions using appropriate
accounting concepts;
7.e. perform accounting procedures
using manual and automated methods;
7.g. demonstrate use of the numeric
keypad by touch
This lesson, as published, correlates to
the following TEKS. Any
changes/alterations to the activities may
result in the elimination of any or all of
the TEKS listed.
130.166.C
8.a. – record inventory usage
8.d. – determine the cost of inventory
TAKS Correlation:
WRITING
Objective 5: The student will produce a piece of writing that demonstrates a
command of the conventions of spelling, capitalization, punctuation, grammar, usage,
and sentence structure.
Objective 6: The student will demonstrate the ability to revise and proofread to
improve the clarity and effectiveness of a piece of writing.
MATH - Objective 10: The student will demonstrate an understanding of the
mathematical processes and tools used in problem solving.
Materials, Equipment and Resources:


Textbook
Spreadsheet Software
Teaching Strategies:


Observation
Verbal Drills
Activity 7.6.4 – Calculating Inventory Cost
Using Weighted-Average Method
Copyright © Texas Education Agency, 2011. All rights reserved.
ACCOUNTING 1
Activity Outline:
1. Demonstrate using the weighted-average method of calculating cost of
inventory for this situation:
A periodic inventory of the 128 MB USB Flash Memory Key Storage was conducted
on December 31. It showed 32 items on hand of stock number G1001. The
following is other purchase information for the item:
Purchase Dates
Units
Jan. 1, beginning inventory
Feb. 1, purchases
May 4, purchases
August 21, purchases
October 30, purchases
Totals
2
45
20
50
25
142
Unit
Price
$15.00
$14.00
$13.00
$12.00
$10.00
Total
Cost
$30.00
$630.00
$260.00
$600.00
$250.00
$1,770.00
Weighted-Average Method:


$1,770.00 divided by 142 units = $12.46 each unit
With 32 units left, the cost of inventory is:
32 X $12.46 = $398.72
2. Have your students use their spreadsheet and their 5 items from the last two
exercises to calculate the cost of inventory for these 5 items using the
weighted-average method.
3. Have your students write a short paragraph comparing the 3 inventory
methods.
Assessment:


Observation
Graded Assignment
Quality Feature
Student participates in demonstration and accurately answers
any verbal questions
Design of spreadsheet clear and effective
Amounts used realistic
LILO method of calculating cost of inventory correct
Web site links w ere provided on each spreadsheet
Written comparison well-written with very few grammatical or
spelling errors
Written comparison logical and a good analysis of the
outcome of the spreadsheet calculations
Completes in a timely manner
Activity 7.6.4 – Calculating Inventory Cost
Using Weighted-Average Method
Score
Copyright © Texas Education Agency, 2011. All rights reserved.
ACCOUNTING 1
Activity 7.6.5 – Estimating Cost of Inventory
Course Title – Accounting I
Session Title –Plant Assets and Depreciation
Activity Purpose - Develop skill in calculating inventory cost using the gross profit
method of estimating method.
OLD TEKS Correlations:
2010 TEKS Correlations:
This lesson, as published, correlates to
the following TEKS. Any
changes/alterations to the activities may
result in the elimination of any or all of
the TEKS listed.
120.42.C
4.d. record inventories;
7.a. follow oral and written instructions;
7.b. develop time management skills by
setting priorities for completing work as
scheduled;
7.c. make decisions using appropriate
accounting concepts;
7.g. demonstrate use of the numeric
keypad by touch
This lesson, as published, correlates to
the following TEKS. Any
changes/alterations to the activities may
result in the elimination of any or all of
the TEKS listed.
130.166.C
8.a. – record inventory usage
TAKS Correlation:
MATH
Objective 10: The student will demonstrate an understanding of the mathematical
processes and tools used in problem solving.
Materials, Equipment and Resources:

Textbook
Teaching Strategies:


Observation
Demonstration
Activity Outline:
Discuss reasons a business would choose to use the gross profit method of
estimating cost of inventory.
Demonstrate calculation using this inventory method:
Step 1: Cost of Merchandise Available for Sale:
Beginning inventory, Jan. 1
Plus net purchases, Jan. 1 to 31
Activity 7.6.5 – Estimating Cost of Inventory
$45,100
30,200
Copyright © Texas Education Agency, 2011. All rights reserved.
ACCOUNTING 1
Cost of Merchandise Available for
Sale
$75,300
Step 2: Gross profit on operations:
Net sales for Jan. 1 to 31
Times previous year’s gross profit percent
Estimated cost of merchandise sold
$22,500
20%
$4,500
Step 3: Cost of merchandise sold:
Net sales for Jan. 1 to 31
Less estimated gross profit on operations
Estimated cost of merchandise sold
$22,500
4,500
$18,000
Step 4: Cost of ending merchandise sold:
Cost of merchandise available for sale
$75,300
(step 1)
Less estimated cost of merchandise sold
18,000
(step 3)
Estimated ending merchandise
$57,300
inventory
3. Ask students to break into teams. Give each team one of the following
problems to calculate the estimated cost of merchandise inventory. Write
the answers on the board so students can tell you which one is their
answer when they are finished. Have your students use a spreadsheet
to create their steps.
Team 1:
Beginning inventory, Jan. 1
Net purchases for fiscal year
Net sales
Previous year’s gross profit
percent
$55,500
$100,000
$76,200
27%
Team 2:
Beginning inventory, Jan. 1
Net purchases for fiscal year
Net sales
Previous year’s gross profit
percent
$330,500
$151,000
$220,000
43%
Team 3:
Beginning inventory, Jan. 1
Net purchases for fiscal year
Net sales
Previous year’s gross profit
percent
Activity 7.6.5 – Estimating Cost of Inventory
$14,010
$6,400
$13,333
14%
Copyright © Texas Education Agency, 2011. All rights reserved.
ACCOUNTING 1
Team 4:
Beginning inventory, Jan. 1
$75,445
Net purchases for fiscal year
$62,000
Net sales
$89,000
Previous year’s gross profit
39%
percent
Team 5:
Beginning inventory, Jan. 1
Net purchases for fiscal year
Net sales
Previous year’s gross profit
percent
$590,500
$260,000
$142,200
63%
Assessment:


Observation
Graded Assignment
Quality Feature
Student participates in discussion and demonstration activities
Student accurately answers any verbal questions
Student participates effectively as a team member
Spreadsheet created by team easy to follow and accurate
Completes in a timely manner
Activity 7.6.5 – Estimating Cost of Inventory
Score
Copyright © Texas Education Agency, 2011. All rights reserved.
ACCOUNTING 1