Question

Athletic World began October with merchandise inventory of 95 crates of vitamins that cost a total of $3,800. During the month, Athletic World purchased and sold merchandise on account as follows:

Oct. 5	Purchase	155	crates @	$71	each
13	Sale	180	crates @	$102	each
18	Purchase	193	crates @	$75	each
26	Sale	200	crates @	$118	each

Begin by computing the cost of goods sold and cost of ending merchandise inventory using the FIFO inventory costing method. Enter the transactions in chronological​ order, calculating new inventory on hand balances after each transaction. Once all of the transactions have been entered into the perpetual​ record, calculate the quantity and total cost of merchandise inventory​ purchased, sold, and on hand at the end of the period.​ (Enter the oldest inventory layers​ first.)

Requirement 1. Prepare a perpetual inventory​ record, using the FIFO inventory costing​ method, and determine the​ company's cost of goods​ sold, ending merchandise​ inventory, and gross profit.

2.	Prepare a perpetual inventory​ record, using the LIFO inventory costing​ method, and determine the​ company's cost of goods​ sold, ending merchandise​ inventory, and gross profit.
3.	Prepare a perpetual inventory​ record, using the​ weighted-average inventory costing​ method, and determine the​ company's cost of goods​ sold, ending merchandise​ inventory, and gross profit.​ (Round weighted-average cost per unit to the nearest cent and all other amounts to the nearest​ dollar.)
4.	If the business wanted to pay the least amount of income taxes​ possible, which method would it​ choose?

	Purchases			Cost of Goods Sold			Inventory on Hand
		Unit	Total		Unit	Total		Unit	Total
Date	Quantity	Cost	Cost	Quantity	Cost	Cost	Quantity	Cost	Cost
Oct. 1
5
13
18
26
Totals

Answer 1

Ans.	Rate for beginning inventory = Total cost / Quantity
		$3,800 / 95
		$40
Ans. 1	Perpetual FIFO:
	Purchase				Cost of goods sold			Balance
	Date	Quantity	Rate	Total cost	Quantity	Rate	Total cost	Quantity	Rate	Total cost
	1-Oct	95	$40.00	$3,800				95	$40.00	$3,800
	5-Oct	155	$71.00	$11,005				95	$40.00	$3,800
								155	$71.00	$11,005
	13-Oct				95	$40.00	$3,800
					85	$71.00	$6,035	70	$71.00	$4,970
	18-Oct	193	$75.00	$14,475				70	$71.00	$4,970
								193	$75.00	$14,475
	26-Oct				70	$71.00	$4,970
					130	$75.00	$9,750	63	$75.00	$4,725
	Total				Cost of goods sold		$24,555	Ending inventory		$4,725
	*In FIFO method the units that have purchased first, are released the first one and the ending inventory
	units remain from the last purchases.
Ans. 2	LIFO:
	Purchase				Cost of goods sold			Balance
	Date	Quantity	Rate	Total cost	Quantity	Rate	Total cost	Quantity	Rate	Total cost
	1-Oct	95	$40.00	$3,800				95	$40.00	$3,800
	5-Oct	155	$71.00	$11,005				95	$40.00	$3,800
								155	$71.00	$11,005
	13-Oct				155	$71.00	$11,005
					25	$40.00	$1,000	70	$40.00	$2,800
	18-Oct	193	$75.00	$14,475				70	$40.00	$2,800
								193	$75.00	$14,475
	26-Oct				193	$75.00	$14,475
					7	$40.00	$280	63	$40.00	$2,520
	Total				Cost of goods sold		$26,760	Ending inventory		$2,520
	*In LIFO method the units that have purchased last, are released the first one and the ending inventory
	units remain from the first purchases.
Ans. 3	Weighted Average
	Purchase				Cost of goods sold			Balance
	Date	Quantity	Rate	Total cost	Quantity	Rate	Total cost	Quantity	Rate	Total cost
	1-Oct	95	$40.00	$3,800				95	$40.00	$3,800
	5-Oct	155	$71.00	$11,005				250	$59.22	$14,805
	13-Oct				180	$59.22	$10,660	70	$59.22	$4,145
	18-Oct	193	$75.00	$14,475				263	$70.80	$18,620
	26-Oct				200	$70.80	$14,160	63	$70.80	4460
	Total				Cost of goods sold		$24,820	Ending inventory		$4,460
	*Weighted average rate is calculated by using the formula of (Total available balance / Total units available).
Ans. 4	LIFO inventory method should be choosen by the company.
	The cost of goods sold under LIFO inventory method is highest so it would provide the lowest gross margin.
	As a result LIFO method yields the lowest net income. Thus, the income tax will be calculated on the lowest
	income, hence it would be lowest.