Description
Inventory Concept and Depreciation Methods
[WLOS: 1, 2] [CLOS: 1, 2, 3, 4, 5]
Prior to beginning work on this assignment, review Chapter 9 of your textbook. Additionally, review the What Are the Methods of Depreciation? and the What is Depreciation in Business? articles.
Scenario:
As a Practice Manager for Dr. Smith and Dr. Brown, you are tasked with preparing a report that illustrates your knowledge of computing inventory and depreciation methods. After analyzing Dr. Smith and Dr. Brown’s Financial Statements Download Dr. Smith and Dr. Brown’s Financial Statements, and performing the necessary calculations, you will decide on the feasibility of purchasing the equipment based on your computations and analysis of the financial statements. In addition, you will explain the rationale for your choice and make a recommendation for the practice.
Download and complete the Inventory Concept and Depreciation Methods Template Download Inventory Concept and Depreciation Methods Template. You will need to ensure that your responses are thorough and written in your own words; give examples as required and list references in APA format in the space provided within the template. When completed, the document will be at least eight pages in length. With that said, the items below illustrate the required components to be completed. NOTE: Information to calculate inventory and depreciation is included in the Inventory Concept and Depreciation Methods Template Download Inventory Concept and Depreciation Methods Template.
Part 1: Inventory Concept and Calculations
Discuss the inventory concept
List an example of an inventory item and discuss how the item moves from inventory to COGS (Costs of Goods Sold). Include information on the meaning of COGS.
Calculate the cost of ending inventory and COGS using the information provided within the template.
FIFO
LIFO
WEIGHTED-AVERAGE
Part 2: Define the Five Methods for Computing Book Depreciation
Define each of the following methods for computing book depreciation:
Straight Line Depreciation Method
Accelerated Book Depreciation: Sum of Years’ Digits (SYD) Method
Accelerated Book Deprecation: Double Declining Balance (DDB) Method
Accelerated Book Deprecation: 150% Declining Balance Method
Part 3: Calculating Depreciation
Calculate depreciation for three of the depreciation methods identified in the template.
Example of Straight Line Depreciation Method
Example of Accelerated Book Depreciation: SYD Method
Example of Accelerated Book Deprecation: DDB Method
Part 4: Analysis of Depreciation Methods
Explain which method would be more feasible for healthcare organizations to use
Hospital
Physician practice
Explain why it is important for a healthcare organization or physician practice to use a depreciation method.
Part 5: Recommendation
What is the depreciation method you would recommend to Dr. Smith and Dr. Brown to purchase the fixed asset? Explain the rationale for your choice.
Paper Requirements:
The Inventory Concept and Depreciation Methods Assignment template Download Inventory Concept and Depreciation Methods Assignment template, once completed,
Should demonstrate an understanding of the reading assignments, class discussions, your own research, and the application of new knowledge.
Must have substantive responses within the template and include complete sentences in paragraph format, including citations for each reference listed. Refer to the Writing CenterLinks to an external site. for information on APA Style
Must use at least one scholarly source from the University of Arizona Global Campus Library in addition to the course text.
The Scholarly, Peer Reviewed, and Other Credible SourcesLinks to an external site. table offers additional guidance on appropriate source types. If you have questions about whether a specific source is appropriate for this assignment, please contact your instructor. Your instructor has the final say about the appropriateness of a specific source for a particular assignment.
Must cite any information used from sources in APA style as outlined in the Writing Center’s Citing Within Your PaperLinks to an external site. guide. For further assistance with the formatting and the title page, refer to APA Formatting for Microsoft Word
Must utilize academic voice. See the Academic Voice resource for additional guidance.
Must include references within the space provided in the template. Reference must be formatted according to APA style as outlined in the Writing Center. See the Formatting Your References ListLinks to an external site. resource in the Writing Center for specifications.
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HCA 312 – WEEK 3 ASSIGNMENT
Enter your name:
INVENTORY CONCEPT & DEPRECIATION METHODS
INSTRUCTIONS: You should review Chapter 9 before completing the template. Refer to the Week 3
Assignment directions within the course to understand what is expected in each row of the table below.
Detail for each section is required. If you include enough detail for each section, the template document will
be at least eight pages in length, which meets the paper length requirements. Include APA citations within
the Response Column where appropriate. List your references in APA format on the last row of this
template. All citations and references must be in APA style according to the Writing Center guidelines.
Once you complete the template, upload the document to the Week 3 Assignment section of the course.
PART I: INVENTORY CONCEPTS AND CALCULATIONS
Answer the following questions.
1. In your own words, discuss the inventory concept.
2. List an example of a hospital inventory item. Describe how this item moves from inventory to COGS
(Cost of Goods Sold).
3. INVENTORY CALCULATION STORY PROBLEM:
ABC Pharmacy began the year with 300 units of Product A in inventory with a unit cost of $40. The
following additional purchases of the product were made:
•
April 1, 200 units @ $50 each
•
July 1, 300 units @ $55 each
•
Sept.15, 350 units @ $60 each
•
Nov. 20, 200 units @ $65 each
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At end of year, ABC Pharmacy had 400 units of its product unsold. Your task is to calculate cost of ending
inventory as well as cost of goods sold by (a) FIFO, (b) LIFO, and (c) Weighted-Average.
Use the information in the table below to assist you in calculating the three different
inventory methods shown under Inventory Methods.
Month
Units
January 1 Begin
Cost per Unit
Amount
300
$40
$12,000
April 1
200
$50
$10,000
July 1
300
$55
$16,500
September 15
350
$60
$21,000
November 20
200
$65
$13,000
Inventory
Totals
1350
$72,500
Make sure to show your work below for FIFO, LIFO, and Weighted-Average.
INVENTORY METHODS
Complete the FIFO calculations in the table: 400 Units in left in Inventory.
FIFO: 400 Units left in Inventory
Units
Cost per Unit
Amount
$
$
COGAFS
$
$
$
Cost of End. Inventory
$
Cost of Ending Inventory
$
COGS using FIFO
$
Complete the LIFO calculations in the table: 400 Units in left in Inventory.
LIFO: 400 Units left in Inventory
Units
Cost per Unit
Amount
$
$
COGAFS
$
$
$
Cost of End. Inventory
$
Cost of Ending Inventory
$
COGS using LIFO
$
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Complete the Weighted-Average calculations in the table: 400 Units in left in Inventory.
Weighted -Average
$72,500
1350 $54
Average
Cost per
Unit
400 Units left in Inventory
Units
Cost per Unit
Amount
COGAFS
$
$
$
Cost of End. Inventory
$
COGS using Weighted
$
Cost of Ending Inventory
Average
PART 2: DEFINE THE FIVE (5) METHODS FOR COMPUTING BOOK DEPRECIATION.
As the Practice Manager, you are tasked with explaining the depreciation methods to Dr. Smith and Dr.
Brown. Write an explanation of each method in your own words.
1. Straight Line Depreciation: Include what is meant by salvage value.
2. Accelerated Book Depreciation: Sum of Years’ Digits Method.
3. Accelerated Book Depreciation: Double Declining Balance Method
4. Accelerated Book Depreciation: 150% Declining Balance Method.
PART 3: CALCULATING DEPRECIATION
As the manager of Dr. Smith and Dr. Brown’s practice, you need to decide whether to purchase new
equipment. Use the following information for the depreciation method calculations. You must show your
work in the blank cells provided.
1. Example of Straight-Line Depreciation Method
Use the following information to calculate the Straight Line
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• Fixed asset cost: $20,000
• Useful life: five years
• Residual value: $2,000
Table for question 1, fill in the blanks for rows 4, 5, 6, 7, and 8.
Depreciation
Method
Calculation
Cost
Residual Value
Straight-Line
Cost – Residual
Value/Useful Life
$20,000
$2,000
End of Year
Cost of Equipment
Yearly
Depreciation
Expense
Accumulated
Depreciation,
End of Year
Useful Life
5
Depreciation
Amount
$3,600
Book Value,
End of Year
(Cost
Accumulation
Depreciation)
1
2
3
4
5
Ending Residual
Value
2. Example of Accelerated Book Depreciation: SYD (Sum of Years’ Digits) Method
Use the following information to calculate the SYD:
• Fixed asset cost: $20,000
• Useful life: five years
• Residual value: $2,000
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Table for question 2. Fill in the blanks in rows 4, 5, 6, 7, and 8.
Depreciation
Method
Cost
Residual
Value
Sum of
Year’s Digits
$20,000
$2,000
End of Year
(Cost Minus
Residual)
Fraction
for Year
Useful Life
$18,000
5
=
Yearly
Depreciation
Expenses
Accumulation
Depreciation
End of Year
Book Value,
End of Year
(Cost
Accumulation
Depreciation)
1
2
3
4
5
Ending
Residual
Value
3. Example of Accelerated Book Depreciation: DDB (Double Declining Balance) Method
• Fixed asset cost: $72,340
• Useful life: five years
• Salvage value: $10,000
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Table with data for question 3 part 1
Depreciation
Calculation:
Method
Cost to be
Salvage
Depreciated
Value
Useful Life
Straight-Line
Double
Factor
Declining
Factor
Cost Residual
DDB
$72, 340
$10,000
5
0.2
0.4
Value/Useful
Life
Table for question 3 part 2. Fill in the blanks for columns 2, 4, 5 and 6.
Years of
Initial cost
Double-
Annual
Accumulated
Net Remaining
Useful Life and then
Declining
Depreciation
Depreciation
Underpreciated
Factor
Expense
(Reserve for
(Net Book
Depreciation)
Value)
the Carry
Forward
Book Value
1
$72,340
0.4
$
$
$
2
0.4
$
$
$
3
0.4
$
$
$
*4
0.2
$
$
$
*5
0.2
$
$
$
Salvage
Value
*DDB is used for the first three years, then the SL method is used for the last two years. Therefore, the DoubleDeclining factor is shown for 3 years and the Straight-Line factor is shown for year 4 and 5.
PART 4: ANALYSIS OF DEPRECIATION METHODS
No matter which type of health care organization, as a manager, you need to be able to choose the best
depreciation method for that type of organization based on the fixed asset being purchased. With that
said, complete the following:
1. Choose one of the depreciation methods that you feel would be more feasible for a hospital to use.
Explain your rationale.
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2. Choose one of the depreciation methods that you feel would be more feasible for a physician practice to
use. Explain your rationale.
3. Explain why it is important for a health care organization or a physician practice to use a depreciation
method.
PART 5: RECOMMENDATION
1. What depreciation method do you recommend Dr. Smith and Dr. Brown use to purchase a fixed asset?
Explain the rationale for your choice.
REFERENCES
List your References in APA Format as outlined in the assignment directions.
HCA312 06/04/2022
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