Question

Mojo Industries tracks the number of units purchased and sold throughout each accounting period but applies its inventory costing method at the end of each period, as if it uses a periodic inventory system. Assume its accounting records provided the following information at the end of the accounting period, January 31. The inventory’s selling price is $9 per unit. Transactions Unit Cost Units Total Cost Inventory, January 1 $ 2.50 260 $ 650 Sale, January 10 (200 ) Purchase, January 12 3.00 310 930 Sale, January 17 (150 ) Purchase, January 26 4.00 55 220 Assume that for Specific identification method the January 10 sale was from the beginning inventory and the January 17 sale was from the January 12 purchase. Required: Compute the amount of goods available for sale, ending inventory, and cost of goods sold at January 31 under each of the following inventory costing methods: (Round your intermediate calculations to 2 decimal places and final answers to the nearest dollar amount.)

1. 2-a. Of the four methods, which will result in the highest gross profit?

• Weighted average cost

• First-in, first-out

• Last-in, first-out

• Specific identification

Transactions	Unit Cost			Units			Total Cost
Inventory, January 1	$	2.50			260		$	650
Sale, January 10					(200	)
Purchase, January 12		3.00			310			930
Sale, January 17					(150	)
Purchase, January 26		4.00			55			220

1. 2-b.Of the four methods, which will result in the lowest income taxes?

• Weighted average cost

• First-in, first-out

• Last-in, first-out

• Specific identification

Answer 1

• All working forms part of the answers
• Requirement 1: Cost of Goods available for Sale, Cost of Goods Sold, Ending Inventory

FIFO	Cost of Goods available for sale			Cost of Goods Sold			Ending Inventory
	Units	Cost/unit	COG for sale	Units sold	Cost/unit	COGS	Units	Cost/unit	Ending inventory
Beginning Inventory	260	$                   2.50	$                            650.00	260	$           2.50	$              650.00	0	$           2.50	$                         -
Purchases:
12-Jan	310	$                   3.00	$                            930.00	90	$           3.00	$              270.00	220	$           3.00	$                660.00
26-Jan	55	$                   4.00	$                            220.00	0	$           4.00	$                        -	55	$           4.00	$                220.00
TOTAL	625		$                        1,800.00	350		$              920.00	275		$                880.00

LIFO	Cost of Goods available for sale			Cost of Goods Sold			Ending Inventory
	Units	Cost/unit	COG for sale	Units sold	Cost/unit	COGS	Units	Cost/unit	Ending inventory
Beginning Inventory	260	$                   2.50	$                            650.00	0	$           2.50	$                        -	260	$           2.50	$                650.00
Purchases:
12-Jan	310	$                   3.00	$                            930.00	295	$           3.00	$              885.00	15	$           3.00	$                  45.00
26-Jan	55	$                   4.00	$                            220.00	55	$           4.00	$              220.00	0	$           4.00	$                         -
TOTAL	625		$                        1,800.00	350		$           1,105.00	275		$                695.00

Specific Identification	Cost of Goods available for sale			Cost of Goods Sold			Ending Inventory
	Units	Cost/unit	COG for sale	Units sold	Cost/unit	COGS	Units	Cost/unit	Ending inventory
Beginning Inventory	260	$                   2.50	$                            650.00	200	$           2.50	$              500.00	60	$           2.50	$                150.00
Purchases:
12-Jan	310	$                   3.00	$                            930.00	150	$           3.00	$              450.00	160	$           3.00	$                480.00
26-Jan	55	$                   4.00	$                            220.00	0	$           4.00	$                        -	55	$           4.00	$                220.00
TOTAL	625		$                        1,800.00	350		$              950.00	275		$                850.00

Weighted Average (Periodic)	Units	Cost per unit	Total
Beginning Inventory	260	$       2.50	$           650.00
Purchases:
12-Jan	310	$       3.00	$           930.00
26-Jan	55	$       4.00	$           220.00
Total Purchases	365		$       1,150.00
Goods Available for Sales	625		$       1,800.00
Weighted Average cost per unit		$    2.880
Cost of Goods Sold	350	$    2.880	$       1,008.00
Ending Inventory	275	$    2.880	$           792.00

Summarised Answer

	Cost of Goods available for Sale	Cost of Goods Sold	Ending Inventory
FIFO	$                      1800	$                      920	$                      880
LIFO	$                      1800	$                  1,105	$                      695
Specific Identification	$                      1800	$                      950	$                      850
Weighted Average	$                      1800	$                  1,008	$                      792

• Requirement 2A

Highest Gross Profits = FIFO, because of lowest Cost of Goods Sold and highest ending inventory.

• Requirement 2B

Lowest Income taxes = LIFO, because of Highest Cost of Goods Sold. Higher Cost of Goods Sold = Lower Gross Profits = Lower Net Income = Lower Income taxes.