Question

Groves Company Inc. had a beginning inventory of 300 units of Product MLN at a cost of $8 per unit. During the year, purchases were:

Feb. 20 700 units at $9

Aug. 12 600 units at $11

May 5 500 units at $10

Dec. 8 100 units at $12

Groves Company uses a periodic inventory system. Sales totaled 1,800 units.

Instructions:

(a) determine the cost of goods available for sale.

(b) Determine the ending inventory and the cost of goods sold under each of the assumed cost flow methods (FIFO, LIFO, and average-cost). Prove the accuracy of the cost of goods sold under the FIFO and LIFO methods. (Round average unit cost to three decimal places.)

(c) Which cost flow method results in the lowest inventory amount for the balance sheet? The lowest cost of goods sold for the income statement?

Answer 1

Req A: Total cost of goods available sale:

Balance (300 units@8) =                     $2400

Purchases: Feb 20 (700 units@9):      $6300

may 5 (500 units @ 10):    $5,000

Aug 12 (600 units@11):                       $6,600

Dec8 (100 units @$ 12):                        $1,200

Total cost of goods available for sale:    $21,500

Req B: ost of godos sold and ending inventory balances is as per statement of each method. Also, the reconciled the total cost fo goods available for sale with cost of goods sold and ending inventory as per statement.

STATEMENT SHOWING INVENTORY RECORD UNDER PERIODIC FIFO METHOD
	RECIEPTS			COST OF GOODS SOLD			BALANCE
DATE	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $
Balance Oct1	300	8	2400	300	8	2400
Purchasse
20-Feb	700	9	6300	700	9	6300
5-May	500	10	5000	500	10	5000
12-Aug	600	11	6600	300	11	3300	300	11	3300
8-Dec	100	12	1200				100	12	1200
TOTAL	2200		21500	1800		17000	400		4500
STATEMENT SHOWING INVENTORY RECORD UNDER PERIODIC LIFO METHOD
	RECIEPTS			COST OF GOODS SOLD			BALANCE
DATE	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $
Balance Oct1	300	8	2400				300	8	2400
Purchasse
20-Feb	700	9	6300	600	9	5400	100	9	900
5-May	500	10	5000	500	10	5000
12-Aug	600	11	6600	600	11	6600
8-Dec	100	12	1200	100	12	1200
TOTAL	2200		21500	1800		18200	400		3300
STATEMENT SHOWING INVENTORY RECORD UNDER PERIODIC AVEARGE METHOD
	RECIEPTS			COST OF GOODS SOLD			BALANCE
DATE	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $
Balance Oct1	300	8	2400
Purchasse
20-Feb	700	9	6300
5-May	500	10	5000
12-Aug	600	11	6600
8-Dec	100	12	1200
TOTAL	2200	9.773	21500	1800	9.773	17591	400	9.773	3909

Req C: LIFO results in lowest invenrtory valuation in balance sheet.

FIFO results in lowest cost of goods sold in income sattement.