Question

Big Fish Company's inventory records for its retail division show the following at July 31:

Jul 1 Beginning Inventory ...... 6 Units @ $165 = $ 990

15 Purchase ........................... 5 Units @ 166 = $ 830

26 Purchase ............................10 Units @ 175 = $ 1,750

At July 31, 9 of these units are on hand.

1. Compute the cost of goods sold and ending inventory, using each of the following four inventory methods:

Begin by entering the number of units sold and number of units in ending inventory. Then calculate cost of goods sold and ending inventory using (a) specific identification, then (b) average cost, then (c) FIFO, and finally (d) LIFO. (Round the average cost per unit to the nearest cent. Round all final answers to the nearest whole dollar.)

REQUIREMENTS:

1. Compute cost of goods sold and ending inventory, using each of the following methods:

a. Specific Identification, with three $165 units and six $175 units still on hand at the end

b. Average cost

c. FIFO

d. LIFO

2. Which method produces the highest cost of goods sold? Which method produces the lowest cost of goods sold? What causes the difference in cost of goods sold?

Answer 1

Part a)

Specific Identification
	Available for sale	Cost of goods sold	Ending Inventory
Purchase Date	Activity	Units	Unit Cost	Units available	Units sold	Unit cost	COGS	Ending Inventory units	Cost per unit	Ending Inventory cost
Jul-01	Beginning Inventory	6	165	990	6	165	990
Jul-15	Purchases	5	166	830	2	166	332	3	166	498
Jul-26	Purchases	10	175	1750	4	175	700	6	175	1050
	Total	21		3570	12		2022	9		1548

Goods Aavailable for sale	21	3570
Cost of goods sold	12	2022
Ending Inventory	9	1548

Average cost method
	Available for sale	Cost of goods sold	Ending Inventory
Purchase Date	Activity	Units	Unit Cost	Units available	Units sold	Unit cost	COGS	Ending Inventory units	Cost per unit	Ending Inventory cost
Jul-01	Beginning Inventory	6	165	990	6	170.00	1020
Jul-15	Purchases	5	166	830	5	170.00	850
Jul-26	Purchases	10	175	1750	1	170.00	170	9	170.00	1530.00
	Total	21	170.00	3570	12	170.00	2040.00	9	170.00	1530.00

Goods Aavailable for sale	21	3570
Cost of goods sold	12	2040
Ending Inventory	9	1530

FIFO Periodic
	Available for sale	Cost of goods sold	Ending Inventory
Purchase Date	Activity	Units	Unit Cost	Units available	Units sold	Unit cost	COGS	Ending Inventory units	Cost per unit	Ending Inventory cost
Jul-01	Beginning Inventory	6	165	990	6	165	990
Jul-15	Purchases	5	166	830	5	166	830
Jul-26	Purchases	10	175	1750	1	175	175	9	175	1575
	Total	21		3570	12		1995	9		1575

Goods Aavailable for sale	21	3570
Cost of goods sold	12	1995
Ending Inventory	9	1575

LIFO Periodic
	Available for sale	Cost of goods sold	Ending Inventory
Purchase Date	Activity	Units	Unit Cost	Units available	Units sold	Unit cost	COGS	Ending Inventory units	Cost per unit	Ending Inventory cost
Jul-01	Beginning Inventory	6	165	990				6	165	990
Jul-15	Purchases	5	166	830	2	166	332	3	166	498
Jul-26	Purchases	10	175	1750	10	175	1750
	Total	21		3570	12		2082	9		1488

Goods Aavailable for sale	21	3570
Cost of goods sold	12	2082
Ending Inventory	9	1488

Particulars	Specific	Average	Fifo	Lifo
Goods Aavailable for sale	3570	3570	3570	3570
Cost of goods sold	2022	2040	1995	2082
Ending Inventory	1548	1530	1575	1488

Highest COGS	2082
Lowest COGS	1995
Difference in COGS	Difference is caused by the different prices at which invenorty is Purchased