In: Accounting
Part 2:
Income Statement based on FIFO (First in First Out)
Pistachios | Almonds | Peanuts | Total | |
Revenue from Sales | $ 78,000 | $ 68,000 | $ 110,000 | $ 256,000 |
Cost of goods sold (FIFO) | $ 44,000 | $ 36,000 | $ 60,000 | $ 140,000 |
Gross Profit | $ 34,000 | $ 32,000 | $ 50,000 | $ 116,000 |
Less: Expenses | ||||
Salaries | - | - | - | $ 3,650 |
Electricity Bill | - | - | - | $ 360 |
Renting of Equipment | - | - | - | $ 950 |
Rent of Warehouse and Office | - | - | - | $ 1,650 |
Miscellaneous | - | - | - | $ 1,250 |
Total Expenses | - | - | - | $ 7,860 |
Net Profit | $ 108,140 |
Under FIFO basis inventory which is purchased first is sold out first. Therefore, the total quantity of Pistachios sold is 3500 KG which is sold first from Pistachios purchased on 02 February (2500 KG) and then from 03 February (1000 KG). The remaining quantity and its equivalent cost form part of the Closing Inventory. The same is followed for the other two that is Almonds and Peanuts.
The cost of goods sold valuation using a FIFO basis method uses this technique " START FROM FIRST".
Cost of Good Sold Statement (FIFO)-Pistachios | |||
Quantity | Price per unit | Total COGS | |
02-Feb | 2,500 | $ 12 | $ 30,000 |
03-Feb | 1,000 | $ 14 | $ 14,000 |
$ 44,000 |
Cost of Good Sold Statement (FIFO)-Almonds | |||
Quantity | Price per unit | Total COGS | |
02-Feb | 4,000 | $ 7 | $ 28,000 |
03-Feb | 1,000 | $ 8 | $ 8,000 |
$ 36,000 |
Cost of Good Sold Statement (FIFO)-Peanuts | |||
Quantity | Price per unit | Total COGS | |
02-Feb | 6,000 | $ 5 | $ 30,000 |
03-Feb | 2,000 | $ 6 | $ 12,000 |
14-Feb | 3,000 | $ 6 | $ 18,000 |
$ 60,000 |
Income Statement based on FIFO (Last in First Out)
Pistachios | Almonds | Peanuts | Total | |
Revenue from Sales | $ 78,000 | $ 68,000 | $ 110,000 | $ 256,000 |
Cost of goods sold (FIFO) | $ 49,000 | $ 41,500 | $ 60,000 | $ 150,500 |
Gross Profit | $ 29,000 | $ 26,500 | $ 50,000 | $ 105,500 |
Less: Expenses | ||||
Salaries | - | - | - | $ 3,650 |
Electricity Bill | - | - | - | $ 360 |
Renting of Equipment | - | - | - | $ 950 |
Rent of Warehouse and Office | - | - | - | $ 1,650 |
Miscellaneous | - | - | - | $ 1,250 |
Total Expenses | - | - | - | $ 7,860 |
Net Profit | $ 97,640 |
Under the LIFO basis of Inventory valuation, the inventory which is purchased at last as on the date of sale is sold out first. The total sales of Almond were 5000 KG. Therefore, for sale made on 06 February of 3500 KG adjusts first, purchase made on 03 February of 2000 KG ($16,000), then the remaining 1500 KF is adjusted from a purchase made on 02 February ($10500). The sales made on 19 February is adjusted from the Purchase made last that is on 12 February. The same is followed for the other two that are Pistachios and Peanuts.
The cost of goods sold valuation using a FIFO basis method uses this technique " START FROM LAST".
Cost of Good Sold Statement (LIFO)-Pistachios | |||
Quantity | Price per unit | Total COGS | |
03-Feb | 1,500 | $ 14 | $ 21,000 |
02-Feb | 1,000 | $ 12 | $ 12,000 |
12-Feb | 1,000 | $ 16 | $ 16,000 |
$ 49,000 |
Cost of Good Sold Statement (LIFO)-Almonds | |||
Quantity | Price per unit | Total COGS | |
03-Feb | 2,000 | $ 8 | $ 16,000 |
02-Feb | 1,500 | $ 7 | $ 10,500 |
12-Feb | 1,500 | $ 10 | $ 15,000 |
$ 41,500 |
Cost of Good Sold Statement (LIFO)-Peanuts | |||
Quantity | Price per unit | Total COGS | |
03-Feb | 2,000 | $ 6 | $ 12,000 |
02-Feb | 2,500 | $ 5 | $ 12,500 |
02-Feb | 3,500 | $ 5 | $ 17,500 |
14-Feb | 3,000 | $ 6 | $ 18,000 |
$ 60,000 |
Income Statement based on FIFO (Average Cost)
Pistachios | Almonds | Peanuts | Total | |
Revenue from Sales | $ 78,000 | $ 68,000 | $ 110,000 | $ 256,000 |
Cost of goods sold (FIFO) | $ 48,462 | $ 41,667 | $ 61,600 | $ 151,729 |
Gross Profit | $ 29,538 | $ 26,333 | $ 48,400 | $ 104,271 |
Less: Expenses | ||||
Salaries | - | - | - | $ 3,650 |
Electricity Bill | - | - | - | $ 360 |
Renting of Equipment | - | - | - | $ 950 |
Rent of Warehouse and Office | - | - | - | $ 1,650 |
Miscellaneous | - | - | - | $ 1,250 |
Total Expenses | - | - | - | $ 7,860 |
Net Profit | $ 96,411 |
Under the Average Cost method of Inventory Valuation, Cost of Goods sold is determined by computing an average value that is,
Cost of Goods Sold of Peanuts
The same is followed for the other two that is Pistachios and Almonds.
Working Note:
Part 3:
The Journal entry for Purchases and Sales would be the same for each of the 3 methods which are as follows:
Date | Account Titles and Explanation | Debit | Credit |
$ | $ | ||
02-Feb | Purchase of Pistachios | 30,000 | |
Purchase of Almonds | 28,000 | ||
Purchase of Peanuts | 30,000 | ||
Cash | 88,000 | ||
To record the purchase of dry fruits | |||
03-Feb | Purchase of Pistachios | 21,000 | |
Purchase of Almonds | 16,000 | ||
Purchase of Peanuts | 12,000 | ||
Cash | 49,000 | ||
To record the purchase of dry fruits | |||
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2: KG PRICE
PER
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Purchase of Pistachios:
2500 $12 $30,000
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Purchase of Peanuts 6000 $5 $30,000
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3: KG PRICE
PER
KG AMOUNT
Purchase of
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Purchase of
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clients:
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PER
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Jim has recently opened a dry fruits wholesale company dedicated to the sale of peanuts, almonds...Jim has recently opened a dry fruits wholesale company dedicated
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Purchase of Almonds: 4000 $6 $24,000
Purchase of Peanuts: 6000 $4 $24,000
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Jim has recently opened a dry fruits wholesale company dedicated to the sale of peanuts, almonds...Jim has recently opened a dry fruits wholesale company dedicated
to the sale of peanuts, almonds and pistachios. During its first
month of activity, the company has made the following
transactions:
February
2: KG PRICE
PER
KG AMOUNT
Purchase of Pistachios:
2500 $12 $30,000
Purchase of Almonds 4000
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Purchase of Peanuts 6000 $5 $30,000
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3: KG PRICE
PER
KG AMOUNT
Purchase of
Pistachios: 1500 $14 $21,000
Purchase of
Almonds: 2000 $8 $16,000
Purchas of
Peanuts: 2000 $6 $12,000
February 6: Sold to several
clients:
KG PRICE
PER
KG AMOUNT
Pistachios: 2000 $22 $44,000
Almonds: 2500 $13 $32,500
Peanuts: 3000 $9 $27,000
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