Question

E8-10B (L0 3)

(FIFO and LIFO—Periodic and Perpetual)

Inventory information for Part 311 of Bonds Corp. discloses the following information for the month of June:

June 1 Balance

450 units @ $1

June 10 Sold

300 units @$2.40

June 11 Purchased

1,200 units @ $2

June 15 Sold

750 units @$2.50

June 20 Purchased

750 units @ $3

June 27 Sold

450 units @ $2.70

Instructions

(a)Assuming that the periodic inventory method is used, compute the cost of goods sold and ending inventory under (1)LIFO and (2) FIFO.

(b) Assuming that the perpetual inventory method is used and costs are computed at the time of each withdrawal, what is the value of the ending inventory at LIFO?

(c)Assuming that the perpetual inventory method is used and costs are computed at the time of each withdrawal, what is the gross profit if the inventory is valued at FIFO?

(d)Why is it stated that FIFO usually produces a higher gross profit than LIFO?

Answer 1

Correct Answer: Option A.

Requirement a

Periodic Inventory	FIFO	LIFO
Cost of Goods Sold	$ 2,550	$ 3,750
Ending Inventory	$ 2,550	$ 1,350

Working:

Cost of Goods Available for sale
		Units	Cost per unit	value
Beginning Inventory		450	$                           1.00	$                      450.00
Purchases
		1200	$                           2.00	$                   2,400.00
		750	$                           3.00	$                   2,250.00
				$                                -
				$                                -
Total		2400		$                   5,100.00

	FIFO (Periodic)
A	Total Units Available for sale			2400		$            5,100.00
	Units Sold			1500
	Ending Inventory Units			900
	Valuation
	Cost of Goods Sold		450		$                          1.00	$                450.00
			1050		$                           2.00	$            2,100.00
						$                         -
						$                         -
						$                         -
B	Cost of Goods Sold		1500	units		$            2,550.00
A-B	Ending Inventory		900	units		$            2,550.00

	LIFO
A	Total Units Available for sale			2400		$            5,100.00
	Units Sold			1500
	Ending Inventory Units			900
	Valuation
	Cost of Goods Sold		750.00		3	2,250.00
			750.00		2	1,500.00
						-
						-
						-
B	Cost of Goods Sold		1500	units		$            3,750.00
A-B	Ending Inventory		900	units		$            1,350.00

Requirement 2:

Perpetual	LIFO
Ending Inventory	$                         1,950

	LIFO (Perpetual)
A	Total Units Available for sale			2400		$            5,100.00
	Units Sold			1500
	Ending Inventory Units			900
	Valuation
	Cost of Goods Sold		300.00		$                           1.00	300.00
			750.00		$                           2.00	1,500.00
			450.00		$                           3.00	1,350.00
						-
						-
B	Cost of Goods Sold		1500	units		$            3,150.00
A-B	Ending Inventory		900	units		$            1,950.00

Requirement 3:

	FIFO
Sales Revenue	$                                       3,810.00
Cost of goods sold	$                                       2,550.00
Gross profit	$                                       1,260.00

Working:

Total Revenue
Units	Cost per unit	value
300	$                          2.40	$      720.00
750	$                          2.50	$   1,875.00
450	$                          2.70	$   1,215.00
1500		$   3,810.00

Requirement 4: FIFO usually produces higher Gross profit than LIFO because in FIFO inventory costing techniques the cost of goods sold is less then what it is under LIFO, since the cost price per unit in LIFO is higher than cost price per unit under FIFO.

End of answer.

Thanks.