Question

1. Ella Company had 160 units in beginning inventory at a total cost of $320. The company purchased 400 units at a total cost of $1,500. At the end of the year, Ella had 120 units in ending inventory

Beginning 160 units ($2.00) $ 320

Purchases 500 units ($3.00) 1,500

Cost of goods available for sale $1,820

A physical count of ending inventory on June 30 reveals that there are 100 units on hand.

REQUIREMENTS:

Calculate the cost of ending inventory and the cost of goods sold under FIFO, LIFO, and Average Cost. Answer the three questions below.

1. SHOW WORK - Calculate the amount allocated to ending inventory as of June 30 using:
   1. FIFO
   2. LIFO
   3. Average Cost

1. SHOW WORK - Calculate the amount allocated to cost of goods sold for the month of June using:
   1. FIFO
   2. LIFO
   3. Average Cost

1. Which inventory cost method would result in the highest net income?

1. Which inventory cost method would result in inventories approximating current cost on the balance sheet?

1. Which inventory cost method would result in Ella paying the least taxes in the first year?

1. The following information is available for Manning Company:

Beginning inventory $ 120,000Cost of goods sold 550,000Ending inventory 140,000Sales 750,000

InstructionsSHOW WORK - Compute each of the following: (a) Inventory turnover. (b) Days in inventory

(c) EXPLAIN WHAT EACH RATIOS MEAN IN WORDS

Answer 1

1		FIFO	LIFO	Average Cost
	The ending inventory	$300	$200	$276
	The cost of goods sold	$1,520	$1,620	$1,544
	Average Cost
	Units	Unit Cost
	160	$2.00	$320
	500	$3.00	$1,500
	660		$1,820
	Average cost per unit		$2.76
	Ending Inventory = 100 x $2.76	$276
	COGS =	Beginning inventory + purchases - ending inventory
	=	$320 + 1,500 - 276
	=	$1,544
	FIFO
	Units	Unit Cost
	100	$3	$300
	Ending Inventory		$300
	COGS =	Beginning inventory + purchases - ending inventory
	=	$320 + 1,500 - 300
	=	$1,520
	LIFO
	Units	Unit Cost
	100	$2	$200
	Ending Inventory		$200
	COGS =	Beginning inventory + purchases - ending inventory
	=	$320 + 1,500 - 200
	=	$1,620
	highest net income	FIFO
	Current cost on the balance sheet	FIFO
	Least taxes in the first year	LIFO
2
(a)	Inventory turnover	4.23
	(Cost of goods sold/Average Inventory)
	(550,000 / 130,000)
	Average Inventory	130,000
	(Beginning inventory + Ending inventory)/2
	(120,000 + 140,000)/2
(b)	Days in Inventory	86	days
	(365/Inventory Turnover)
	(365 / 4.23)