Question

Novak Company’s record of transactions for the month of April was as follows.

Purchases							Sales
April 1	(balance on hand)		1,740	@	$6.00		April 3		1,450	@	$10.00
4			4,350	@	6.08		9		4,060	@	10.00
8			2,320	@	6.40		11		1,740	@	11.00
13			3,480	@	6.50		23		3,480	@	11.00
21			2,030	@	6.60		27		2,610	@	12.00
29			1,450	@	6.79				13,340
			15,370

Assuming that periodic inventory records are kept in units only, calculate the average-cost per unit. (Round answer to 2 decimal places, e.g. 2.76.)

Average-cost per unit

$  per unit

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Assuming that periodic inventory records are kept in units only, compute the inventory at April 30 using LIFO and average-cost. (Round answer to 0 decimal places, e.g. 2,760.)

LIFO		$
Average-cost		$

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Assuming that perpetual inventory records are kept in dollars, determine the inventory using (1) FIFO and (2) LIFO. (Round answer to 0 decimal places, e.g. 2,760.)

		(1) FIFO		(2) LIFO
Inventory		$		$

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Compute cost of goods sold assuming periodic inventory procedures and inventory priced at FIFO. (Round answer to 0 decimal places, e.g. 2,760.)

Cost of goods sold

$

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In an inflationary period, which inventory method—FIFO, LIFO, average-cost—will show the highest net income?

Average-costFIFOLIFO inventory method will show the highest net income.

show work and explain

Answer 1

average cost per unit = total cost of goods available for sale divided by total units available for sale

average cost per unit = 97599.5 /15370 =$6.35

ending inventory = beginning +purchases -sales =1740+13630-13340 =2030

ending inventory average cost method =2030 * $6.35 =$12891 (12890.5 is rounded off)

ending inventory as lifo method =1740 units of $6+ 290 units of $6.08 =$10440+$1763.2 =$12203 ( in lifo while calculating ending inventory consider the oldest inventory)

lifo perpetual ending inventory

date	purchases	cost of goods sales	inventory
apr 1	1740 *$6		1740* $6
apr 3		1450* $6	290*6
apr 4	4350* $6.08		290* $6+4350* $6.08
apr 8	2320* $6.40		290 *$6+4350* 6.08+2320 *$6.40
apr 9		2320*6.40+1740* 6.08	290 *$6+2610 *$6.08
apr 11		1740* $6.08	290* $6 +870* $6.08
apr 13	3480* $6.50		290*$6+870*$6.08+3480*$6.50
apr21	2030*$6.60		290* $6+870* $6.08+3480* $6.50+2030* $6.60
apr 23		2030* $6.60+1450* $6.50	290* $6+870* $6.08+2030* $6.50
apr27		2030* $6.50+580* $6.80	290* $6+290 *$6.080
apr 29	1450* $6.79		290* $6+290* $6.08+1450* $6.79

ending inventory as per lifo =290* $6+290* $6.08+1450* $6.79 =1740+1763.2+9485.5= $13349

likewise calculate for fifo or consider the last remaining items means the last purchases

ending inventory as per fifo = 1450 units of $6.79+580 units of 6.60 =$9845.5+$3828 =$13674

cost of goods as per fifo =1740 units of $6.00+4350 units of $6.08+2320 units of $6.40+3480 units of $6.50+1450 units of $6.60    =$83926

under fifo method consider the oldest inventory.

in an inflationary periods the use of fifo will result the lowest estimate of cost of goods sold among the three approaches, and the highest net income

lifo method - the older inventory which was cheaper would be sold later. but in inflationary condition the cost of goods sold would be higher because the new inventory would be more expensive. as its result company would record lower profit or net income.

fifo method - the oldest inventory that was acquired first is used up first for sale . but in inflationary condition the cost of goods sold would be lower because the old inventory would be low expensive . as its result company increase net income.

average cost = average cost of goods lies between the fifo method & lifo method hence it shows net income lower than fifo