Question

Ayayai Ltd. uses the perpetual inventory system and reports the following inventory transactions for the month of June:

Date			Explanation		Units		Unit Cost					Total Cost
June	1		Beginning inventory		1,390			$4				$5,560.00
	12		Purchases		2,230			5				11,150
	15		Sale		(2,640	)
	16		Purchases		4,580			6				27,480
	23		Purchases		1,640			7				11,480
	27		Sales		(5,460	)

Part 1

Determine the cost of goods sold and the cost of the ending inventory using (1) FIFO and (2) Average cost. (Round average
final answers to 2 decimal places, e.g. 1.25. Do not round intermediate calculations.)

	FIFO	Average
Cost of goods sold	$enter a dollar amount	$enter a dollar amount
Cost of ending inventory	$enter a dollar amount	$enter a dollar amount

Which cost formula results in the higher cost of goods sold? Why?

The select an option                                                                      averageFIFO cost formula results in a select an option                                                                      higherlower cost of goods sold because the cost of inventory is select an option                                                                      risingfalling.

Which cost formula results in the higher net income? Why?

The select an option                                                                      averageFIFO cost method formula in a select an option                                                                      higherlower profit because it produces the select an option                                                                      lowerhigher cost of goods sold when prices are select an option

Which cost formula results in the higher ending inventory? Why?

The select an option                                                                      averageFIFO cost formula results in a select an option                                                                      higherlower ending inventory because the cost of inventory is select an option                                                                      risingfalling.

Which cost formula results in the higher cash flow? Why?

select an option                                                                      AverageFIFOBoth cost formula result in the same pre-tax cash flow. The cost methods select an option                                                                      increasedecreasedo not change the pre-tax cash flows of a company.

Answer 1

1) FIFO

Purchase

Cost of goods sold

Balance

Date	Units	Price	Total	Units	Price	Total	Units	Price	Total
June 1							1390	4	5560
June 12	2230	5	11150				1390	4	5560
							2230	5	11150
June 15				1390	4	5560
				1250	5	6250	980	5	4900
June 16	4580	6	27480				980	5	4900
							4580	6	27480
June 23	1640	7	11480				980	5	4900
							4580	6	27480
							1640	7	11480
June 27				980	5	4900
				4480	6	26880	100	6	600
							1640	7	11480
Total	8450		550110	8100		43590	1740		12080

COGS : 43590

Ending inventory 12080

2)

Purchase

Cost of Goods Sold

Balance

Date	Units	Amont	Total	Units	Amount	Total	Units	Amount	Total
June1							1390	4	5560
June 12	2230	5	11150				1390	4	5560
							2230	5	11150
							3620	16710/3620 =4.62	16710
June 15				2640	4.62	12196.8	980	4.62	4527.6
June 16	4580	6	27480				980	4.62	4527.6
							4580	6	27480
							5560	5.76	32007.6
June 23	1640	7	11480				5560		32007.6
							1640		11480
							7200	6.04	43487.6
June 27				5460	6.04	32978.4	1740	6.04	10509.6
Total				8100		45175.2	1740	6.04	10509.6

COGS 45175.2

Ending Inventory 10509.6

1) Which cost formula results in the higher cost of goods sold : AVERAGE COST because cost of invemtory is RISING

2) Which cost formula results in the higher net income : LIFO

Higher profit because lower cost of goods sold

3) Which cost formula results in the higher ending inventory LIFO Cost formula results in HIGHER ending inventory because RISING COST OF INVENTORY

4) Which cost formula results in the higher cash flow? FIFO This cost method increases the cash flow *