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Understanding pharmacy inventory valuation is essential for accurate financial reporting and effective inventory management. Practicing with real-world problems helps students and professionals grasp the concepts better. Below are some practice problems on pharmacy inventory valuation, complete with solutions to aid learning.
Practice Problem 1: FIFO Method
A pharmacy has the following inventory purchases during January:
- January 1: 50 units @ $10 each
- January 10: 40 units @ $12 each
- January 20: 30 units @ $11 each
During January, the pharmacy sells 70 units. Calculate the ending inventory value using the FIFO (First-In, First-Out) method.
Solution to Practice Problem 1
Under FIFO, the earliest purchases are sold first. The sale of 70 units will be accounted for as follows:
- 50 units from January 1 @ $10 = $500
- 20 units from January 10 @ $12 = $240
Remaining inventory after sale:
- 20 units from January 10 @ $12 = $240
- 30 units from January 20 @ $11 = $330
Ending inventory value = $240 + $330 = $570.
Practice Problem 2: Weighted Average Method
A pharmacy’s inventory transactions in February are as follows:
- February 1: 100 units @ $8 each
- February 15: 50 units @ $10 each
During February, 80 units are sold. Determine the ending inventory value using the weighted average method.
Solution to Practice Problem 2
Total cost of inventory:
- 100 units @ $8 = $800
- 50 units @ $10 = $500
Total units = 150
Weighted average cost per unit:
$800 + $500 = $1,300 total cost
Weighted average cost per unit = $1,300 / 150 units = $8.67
Cost of goods sold for 80 units = 80 x $8.67 = $693.60
Ending inventory units = 150 – 80 = 70 units
Ending inventory value = 70 x $8.67 = $606.90
Practice Problem 3: Specific Identification Method
A pharmacy sells high-value medications and uses the specific identification method. The inventory records are as follows:
- Beginning inventory: 10 units @ $200 each
- Purchase on March 10: 5 units @ $210 each
- Purchase on March 20: 8 units @ $220 each
The pharmacy sells 12 units during March. If the units sold are from the latest purchases, what is the ending inventory value?
Solution to Practice Problem 3
Since the units sold are from the latest purchases, the sale includes:
- 8 units @ $220 (from March 20)
- 4 units @ $210 (from March 10)
Remaining inventory:
- 1 unit @ $210 (from March 10)
- 10 units @ $200 (beginning inventory)
Ending inventory value = (1 x $210) + (10 x $200) = $210 + $2,000 = $2,210.
Conclusion
Practicing different inventory valuation methods helps in understanding their impact on financial statements. FIFO emphasizes current costs, weighted average smooths fluctuations, and specific identification tracks individual items. Mastery of these methods is vital for accurate inventory management and financial reporting in pharmacy operations.