Question

Periodic Inventory by Three Methods

Dymac Appliances uses the periodic inventory system. Details regarding the inventory of appliances at January 1, purchases invoices during the next 12 months, and the inventory count at December 31 are summarized as follows:

Required:

1. Determine the cost of the inventory on December 31 by the first-in, first-out method.

If the inventory of a particular model comprises one entire purchase plus a portion of another purchase acquired at a different unit cost, use a separate line for each purchase. If units are in inventory at two different costs, enter the units PURCHASED MOST RECENTLY first.

2. Determine the cost of the inventory on December 31 by the last-in, first-out method.

If the inventory of a particular model comprises one entire purchase plus a portion of another purchase acquired at a different unit cost, use a separate line for each purchase. If units are in inventory at two different costs, enter the OLDEST units first.

3. Determine the cost of the inventory on December 31 by the weighted average cost method.

4a. Which inventory method would be preferred for income tax purposes in periods of rising prices?

4b. Which inventory method would be preferred for income tax purposes in periods of declining prices?

Answer 1

1.

Model	Quantity	Unit Cost	Total Cost
A10	4	$                    76	$                304
A10	2	$                    70	$                140
B15	6	$                  184	$            1,104
B15	2	$                  170	$                340
E60	5	$                    70	$                350
G83	9	$                  259	$            2,331
J34	15	$                  270	$            4,050
M90	3	$                  130	$                390
M90	2	$                  128	$                256
Q70	7	$                  180	$            1,260
Q70	1	$                  175	$                175
Total			$          10,700

2. LIFO

Model	Quantity	Unit Cost	Total Cost
A10	4	$                    64	$                256
A10	2	$                    70	$                140
B15	8	$                  176	$            1,408
E60	3	$                    75	$                225
E60	2	$                    65	$                130
G83	7	$                  242	$            1,694
G83	2	$                  250	$                500
J34	12	$                  240	$            2,880
J34	3	$                  246	$                738
M90	2	$                  108	$                216
M90	2	$                  110	$                220
M90	1	$                  128	$                128
Q70	5	$                  160	$                800
Q70	3	$                  170	$                510
Total			$            9,845

3. W. Average

Model	Quantity	Unit Cost	Total Cost
A10	6	$                    70	$                420
B15	8	$                  174	$            1,392
E60	5	$                    69	$                345
G83	9	$                  253	$            2,277
J34	15	$                  258	$            3,870
M90	5	$                  121	$                605
Q70	8	$                  172	$            1,376
Total			$          10,285

4a. In period of rising prices, LIFO method would be preferred for income tax, since Cost of Goods Sold will be higher and hence lower net income

4b. In period of declining prices, FIFO method would be preferred for income tax, since Cost of Goods Sold will be higher and hence lower net income