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Inventory Pricing Methods When working with inventories, there are four main pricing methods: FIFO, LIFO, Averaged...

Inventory Pricing Methods

When working with inventories, there are four main pricing methods: FIFO, LIFO, Averaged Price, and Actual Price. All four of these will be used.

Complete each of the pricing methods. Find the cost of goods sold for each.

Use the following information for this assignment:

- The restaurant in question sells a salad that used cannellini beans. The salad is so popular that lots of jars of the beans must always be on hand, which the restaurant orders from an Italian importer by the case. Each case contains 12 jars at 16 ounces each. Each salad gets about 2 ounces of beans. - On March 8th, 2013, the restaurant ordered 4 cases and the cost for each was $40.

On March 15th, the restaurant ordered 8 cases at the same cost. On March 22nd, because of rising gas prices, the restaurant had to pay $50 for each of the 12 cases it ordered. That same price applied for the final order of the month on the 29th, when the restaurant ordered another 12 cases. - At the beginning of the month, 2 cases were on-hand, and at the end, 3.5 were available.

Considering the results of each pricing method you just completed, which would you choose to use if you were the manager of a restaurant with these numbers? Why?

Solutions

Expert Solution

CALCULATION FOR THE CASES SOLD

Opening stock =2

Purchased = 24

closing stock = 3.5

sold cases = (2+24-3.5 ) =  22.5

COST OF GOODS SOLD UNDER FIFO

CASES SOLD PRICE TOTAL
2 40 80
4 50 200
8 50 400
8.5 50 425
22.5 1105

COST OF GOODS SOLD UNDER LIFO

CASES SOLD PRICE TOTAL
12 50 600
8 50 400
2.5 50 125
22.5 1125

COST OF GOODS SOLD UNDER AVERAGE METHOD

Calculation of average price

average price = (40+50+50+50)/4 = 47.5

cost of goods sold under simple average method = 47.5*22.5 = 1068.75

COST OF GOODS SOLD UNDER ACTUAL METHOD

The practice of following of FIFO method can be said a actual method for the valuation of the cost of goods sold.

Thus cost of goods sold under actual method will remain same as calculated in FIFO basis. i.e., 1105

The best method for the computation of cost of goods sold is FIFO, because it reflects true and fair view in the financial statments.

ekkarill92 answered 2 years ago
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