Question

Randal company has the following inventory transactions for the month of April:

Purchases: Units Cost Sales: Units

April 1 (beg. balance) 600 $6.00 April 3 500

4 1,500 $6.08 9 1,400

8 800 $6.40 11 600

13 1,200 $6.50 23 1,200

21 700 $6.60 27 900

29 500 $6.79

Instructions:

1) Assume Randal Company uses periodic inventory records. Determine the value of ending inventory using:

a) FIFO

b) LIFO

c) Average-cost

2) Assume Randa lComapny uses perpetual inventory records. Determine the value of ending inventory using:

a) FIFO

b) LIFO

3) Calculate cost of goods sold assuming the company uses periodic inventory procedures and inventory is priced using FIFO.

4) During an inflationary time period, which inventory method (FIFO, LFIO, or weighted average) will result in the highest net income? Why?

Answer 1

date	opening	purcahse	sale	closing	Purchase rate per unit
1-Apr	600			600	6
3-Apr	600		500	100
4-Apr	100	1500		1600	6.08
8-Apr	1600	800		2400	6.4
9-Apr	2400		1400	1000
11-Apr	1000		600	400
13-Apr	400	1200		1600	6.5
21-Apr	1600	700		2300	6.6
23-Apr	2300		1200	1100
27-Apr	1100		900	200
29-Apr	200	500		700	6.79

value of ending inventory -	Amt. $
Ending Inventory in units	700
As per FIFO cost of ending invnetory(500*6.79+200*6.60)	4715
left stock as per LIFO in 700 units
100 units @ 6	600
100 units @ 6.08	608
500 units @ 6.79	3395
Cost of ending inventory as per LIFO	4603

Calculation of valuation of ending inventory as per Average cost basis -

date	opening	purcahse	Purchase rate per unit	Purcahse cost
1-Apr	600		6	3600
3-Apr	600			0
4-Apr	100	1500	6.08	9120
8-Apr	1600	800	6.4	5120
9-Apr	2400			0
11-Apr	1000			0
13-Apr	400	1200	6.5	7800
21-Apr	1600	700	6.6	4620
23-Apr	2300			0
27-Apr	1100			0
29-Apr	200	500	6.79	3395
		5300		33655

Average cost = 33655 /5300

=6.35

as begnning inventory and cost will be included in purcahse column.

2) perpetual inventory records -

a) FIFO basis -

date	opening	purcahse	sale	closing	Purchase rate per unit	value of inventory
1-Apr	600			600	6	3600
3-Apr	600		500	100		600
4-Apr	100	1500		1600	6.08	9720
8-Apr	1600	800		2400	6.4	14840
9-Apr	2400		1400	1000		6336
11-Apr	1000		600	400		2560
13-Apr	400	1200		1600	6.5	10360
21-Apr	1600	700		2300	6.6	14980
23-Apr	2300		1200	1100		7220
27-Apr	1100		900	200		1320
29-Apr	200	500		700	6.79	4715

LIFO Basis

date	opening	purcahse	sale	closing	Purchase rate per unit	value of inventory
1-Apr	600			600	6	3600
3-Apr	600		500	100		600
4-Apr	100	1500		1600	6.08	9720
8-Apr	1600	800		2400	6.4	14840
9-Apr	2400		1400	1000		6072
11-Apr	1000		600	400		2424
13-Apr	400	1200		1600	6.5	10224
21-Apr	1600	700		2300	6.6	14844
23-Apr	2300		1200	1100		6974
27-Apr	1100		900	200		1208
29-Apr	200	500		700	6.79	4603

3) COGS = Total inventory cost - value of closing invnetory

= 33655 - 4715

= 28940

4) During inflation time period FIFO will result in the highest net income because it has the lowest COGS.

Please note all values are in $.

In casr of any clarification requried please comment.