Question

Alternative Inventory Methods

Garrett Company has the following transactions during the months of April and May:

Date	Transaction	Units	Cost/Unit
April 1	Balance	400
17	Purchase	200	$5.50
25	Sale	150
28	Purchase	100	5.75
May 5	Purchase	250	5.50
18	Sale	300
22	Sale	50

The cost of the inventory on April 1 is $5, $4, and $2 per unit, respectively, under the FIFO, average, and LIFO cost flow assumptions.

Required:

1. Compute the inventories at the end of each month and the cost of goods sold for each month for the following alternatives:

1. FIFO periodic

   	Cost of Goods Sold	Ending Inventory
   April	$	$
   May	$	$

2. FIFO perpetual

   	Cost of Goods Sold	Ending Inventory
   April	$	$
   May	$	$

3. LIFO periodic

   	Cost of Goods Sold	Ending Inventory
   April	$	$
   May	$	$

4. LIFO perpetual (Round your intermediate calculations to the nearest cent.)

   	Cost of Goods Sold	Ending Inventory
   April	$	$
   May	$	$

5. Weighted average (Round unit costs to 4 decimal places and final answers to the nearest dollar.)

   	Cost of Goods Sold	Ending Inventory
   April	$	$
   May	$	$

6. Moving average (Round unit costs to 2 decimal places and final answers to nearest dollar.)

   	Cost of Goods Sold	Ending Inventory
   April	$	$
   May	$	$

2. Reconcile the difference between the LIFO periodic and the LIFO perpetual results. If an amount is zero, enter "0".

April	Cost of Goods Sold	Ending Inventory
Difference	$	$
May	Cost of Goods Sold	Ending Inventory
Difference	$	$

3. If Garrett uses IFRS, which of the previous alternatives would be acceptable, and why?

If Garrett Company uses IFRS, it may report its inventory under FIFO, average, or specific identification . It may not use  under IFRS because it is not consistent with any presumed physical flow of inventory. Also,   is not allowed for tax purposes in most other countries, so there is no tax incentive for a company to use  . Note that companies that use IFRS and have rising inventory costs will report a higher income because they include holding gains in income.

Answer 1

1 a. FIFO Periodic

	Cost of goods sold	ending inventory
April	$ 750	$ 2925
May	$ 1800	$ 2500

Total units available for sale for the month of April = 400 +200 +100 = 700  

Total sale for April = 150 units

Therefore ending inventory = 700 - 150 = 550 units

These 550 units will be the last units added to the inventory and sales of 150 units will be from opening balance

therefore cost of goods sold for April = 150 * $ 5 = $ 750

Ending inventory for April = (250 * 5) + (200 *5.5 ) + (100 * 5.75)= $2925

Total units available for sale in May including balance from April = 550+250 = 800 units

total sales for may = 300 + 50 = 350 units

ending inventory = 800 - 350 = 450 units

350 units will be from the inventory which comes first to the stock and 450 will be comes last.

cost of goods sold = (250 * 5) + (100 * 5.5) = $ 1800

ending inventory = (100*5.5)+(100*5.75) +(250*5.5) = $ 2500

1 b . FIFO Perpetual

	Cost of goods sold	Ending inventory
April	$750	$2925
May	$ 1800	$ 2500

Sale occurred in 25th of April will be from the beginning balance and the rest will be remained in the inventory

Therefore cost of goods sold = 150 * 5 = $ 750

Ending inventory = (250*5)+(200*5.5)+(100*5.75)= $ 2925

For May

Sale on 18th may 250 units will be from balance from April 1 & 50 units will be from purchase of 17th April purchase

Sale on 22nd may 50 units will be from purchase of 17th April

cost of goods sold = (250 * 5) + ( 100*5.5) = $ 1800

Ending inventory = (100*5.5)+(100*5.75) +(250*5.5) = $ 2500

1 c. LIFO Periodic

	Cost of goods sold	Ending inventory
April	$ 380.75	$ 2825
May	$ 1925	$ 2275

Sale of 150 for April will be from the units last purchased and units purchased initially will be remained in the inventory

Cost of goods sold for April = (100*5.75 ) + ( 50 * 5.5 ) = $ 380.75

Ending inventory for April = (400*5)+(150*5.5)= $2825

For May

Cost of goods sold = (250*5.5)+( 100*5.5) = $ 1925 ( the first 250 units will be from the purchase of May and remaining will be from the balance of April )

Ending inventory for may = (50*5.5)+(400*5) = $ 2275

1 d . LIFO Perpetual

	Cost of goods sold	Ending inventory
April	$ 825	$ 2850
May	$ 1950	$ 2275

April

sale of 150 units goes from the inventory last purchased

cost of goods sold = 150*5.5= $ 825

ending inventory = (100*5.75)+(50*5.5)+(400*5)= $ 2850

May

sale of 300 units on may 5th , the 250 units will be from may 5th purchase and 50 will be from April balance and for may 22nd sale 50 units will be from April balance

Cost of goods sold = (250*5.5)+(50*5.75)+(50*5.75) = $ 1950

Ending inventory = (50*5.5)+(400*5) = $ 2275

1 e. Weighted Average

	Cost of goods sold	Ending inventory
April	$ 787.5	$ 2887.5
May	$ 1864.835	$ 2397.645

Total units available for sale for April = 400 +200 +100 = 700

total units sold in April = 150 units

ending inventory = 700 -150 = 550 units

weighted average price for April = total price / total units  

=( (400*5)+(200*5.5) + (100*5.75) )/700= $ 5.25

cost of goods sold = 150*5.25= 787.5

ending inventory = 5.25* 550= 2887.5

May

sales = 300+50= 350

ending inventory = 550+250-350= 450

weighted average price for May= ((550 *5.25)+(250*5.5))/800= $ 5.3281

cost of goods sold = 350*5.3281= 1864.835

ending inventory = 2397.645

1 f. Moving average

	Cost of goods sold	Ending inventory
April	$ 7752.005	$ 2900.04
May	$1870.33	$ 2404.71

2. Reconcilation of difference

April	Cost of goods sold	Ending inventory
Difference	380.75-825= $ 444.25	2825-2850= $25
May	Cost of goods sold	Ending inventory
Difference	1925-1950= $ $ 25	2275-2275= 0

3. Question is already answered.