In: Accounting
Applying and Analyzing Inventory Costing Methods
At the beginning of the current period, Chen carried 1,000 units of
its product with a unit cost of $15. A summary of purchases during
the current period follows. During the period, Chen sold 2,800
units.
Units | Unit Cost | Cost | |
---|---|---|---|
Beginning Inventory | 1,000 | $ 15 | $ 15,000 |
Purchase #1 | 1,800 | 14 | 25,200 |
Purchase #2 | 800 | 16 | 12,800 |
Purchase #3 | 1,200 | 19 | 22,800 |
(a) Assume that Chen uses the first-in, first-out method. Compute
both cost of good sold for the current period and the ending
inventory balance. Use the financial statement effects template to
record cost of goods sold for the period.
Ending inventory balance $Answer
Cost of goods
sold $Answer
Use negative signs with answers, when appropriate.
Balance Sheet |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|
Transaction | Cash Asset | + |
Noncash Assets |
= | Liabilities | + |
Contributed Capital |
+ |
Earned Capital |
|
Record FIFO cost of goods sold | Answer | Answer | Answer | Answer | Answer |
Income Statement |
||||
---|---|---|---|---|
Revenue |
- |
Expenses |
= |
Net Income |
Answer | Answer | Answer |
(b) Assume that Chen uses the last-in, first-out method. Compute
both cost of good sold for the current period and the ending
inventory balance.
Ending inventory balance $Answer
Cost of goods
sold $Answer
(c) Assume that Chen uses the average cost method. Compute both
cost of good sold for the current period and the ending inventory
balance. (Hint: Round average cost per unit two decimal places
prior to calculating the Ending inventory balance. Calculate the
Cost of Goods Sold (CGS) as: (CGS = Cost of goods available for
sale - Ending inventory balance.)
Ending inventory balance $Answer
Cost of goods
sold $Answer
(d) Which of these three inventory costing methods would you choose
to:
1. Reflect what is probably the physical flow of goods? |
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2. Minimize income taxes for the period? |
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3. Report the largest amount of income for the period? |
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