Question

Mower-Blower Sales Co. started business on January 20, 2016. Products sold were snow blowers and lawn mowers. Each product sold for $1,400. Purchases during 2016 were as follows:

	Blowers				Mowers
January 21	20	@	$	800
February 3	40	@		780
February 28	30	@		760
March 13	20	@		760
April 6					20	@	$	840
May 22					40	@		860
June 3					40	@		880
June 20					60	@		920
August 15					20	@		860
September 20					20	@		840
November 7	20	@		800

The December 31, 2016, inventory included 10 blowers and 25 mowers. Assume the company uses a periodic inventory system.

Required:

a-1. Compute ending inventory valuation at December 31, 2016, under the FIFO and LIFO cost flow assumptions.
a-2. Is there any difference in valuation under FIFO and LIFO.
b. If the cost of mowers had increased to $960 each by December 1, and if management had purchased 30 mowers at that time and if it wants to minimize taxes, which cost flow assumption was probably being used by the firm?

Answer 1

Solution:

Answer  a-1.Value of  ending inventory valuation at December 31, 2016, under the FIFO and LIFO cost flow assumptions:

FIFO
Blowers (10 * 800)	$8,000
Mowers (20 * $840) + (5 * $860)	$21,100
Total	$29,100

LIFO
Blowers (10 * 800)	$8,000
Mowers (20 * $840) + (5 * $860)	$21,100
Total	$29,100

Note:   On account of Blowers the unit costs of the first and last buys are the same. On account of Mowers, the unit costs of the initial two buys are the same. That is the motivation behind why the stock qualities under both the techniques are same.

Answer a-2:  

There is no difference. The inventory under both cost flow assumptions are same.

Answer b:

In the event that LIFO were utilized, the units in the stock would have estimations of

$840 / $860.

In the event that they have unit estimation of $960, at that point the closure stock ought to be shape the buys of december.

Here, 30 units have been bought in december at $960.

In the event that FIFO strategy is taken after, the consummation stock of 25 units would be esteemed at the rate of the last buy: That is $960 each.

   FIFO is the cost flow assumption used.