In: Accounting
4.
Effects of Inventory Costing Methods and Changing Prices
Using the data below, show the ending inventory and cost of goods sold for each of the methods shown in the table below, including the effects of the different prices at which the merchandise was purchased. For the specific-identification method, assume that the inventory consists of 26 units from the August 8 purchase and 28 units from the purchase of August 22. For all other methods, assume Vegan uses a periodic inventory system.
Aug. 1 | Inventory | 42 | units @ $10 per unit | $ 420 | ||
8 | Purchase | 50 | units @ $11 per unit | 550 | ||
22 | Purchase | 30 | units @ $12 per unit | 360 | ||
Goods available for sale | 122 | units | 1,330 | |||
Aug. 15 | Sale | 46 | units | |||
28 | Sale | 34 | units | |||
Inventory, Aug. 31 | 42 | units |
In your calculations round average unit cost to the nearest cent and round your final answers to the nearest dollar.
Periodic Inventory System | |||||
Specific Identification Method | Average-Cost Method | FIFO Method | LIFO Method | ||
Ending inventory: | $ | $ | $ | $ | |
Cost of goods sold: | $ | $ | $ | $ |
Which method(s) would result in the lowest income taxes?
SelectLIFOFIFOAverage-Cost MethodSpecific Identification MethodItem
9
FIFO |
Cost of Goods available for sale |
Cost of Goods Sold |
Ending Inventory |
||||||
Units |
Cost/unit |
COG for sale |
Units sold |
Cost/unit |
COGS |
Units |
Cost/unit |
Ending inventory |
|
Beginning Inventory |
42 |
$ 10.00 |
$ 420.00 |
42 |
$ 10.00 |
$ 420.00 |
0 |
$ 10.00 |
$ - |
Purchases: |
|||||||||
08-Aug |
50 |
$ 11.00 |
$ 550.00 |
38 |
$ 11.00 |
$ 418.00 |
12 |
$ 11.00 |
$ 132.00 |
22-Aug |
30 |
$ 12.00 |
$ 360.00 |
0 |
$ 12.00 |
$ - |
30 |
$ 12.00 |
$ 360.00 |
TOTAL |
122 |
$ 1,330.00 |
80 |
$ 838.00 |
42 |
$ 492.00 |
|||
LIFO |
Cost of Goods available for sale |
Cost of Goods Sold |
Ending Inventory |
||||||
Units |
Cost/unit |
COG for sale |
Units sold |
Cost/unit |
COGS |
Units |
Cost/unit |
Ending inventory |
|
Beginning Inventory |
42 |
$ 10.00 |
$ 420.00 |
0 |
$ 10.00 |
$ - |
42 |
$ 10.00 |
$ 420.00 |
Purchases: |
0 |
$ - |
$ - |
||||||
08-Aug |
50 |
$ 11.00 |
$ 550.00 |
50 |
$ 11.00 |
$ 550.00 |
0 |
$ 11.00 |
$ - |
22-Aug |
30 |
$ 12.00 |
$ 360.00 |
30 |
$ 12.00 |
$ 360.00 |
0 |
$ 12.00 |
$ - |
TOTAL |
122 |
$ 1,330.00 |
80 |
$ 910.00 |
42 |
$ 420.00 |
|||
Specific Identification |
Cost of Goods available for sale |
Cost of Goods Sold |
Ending Inventory |
||||||
Units |
Cost/unit |
COG for sale |
Units sold |
Cost/unit |
COGS |
Units |
Cost/unit |
Ending inventory |
|
Beginning Inventory |
42 |
$ 10.00 |
$ 420.00 |
42 |
$ 10.00 |
$ 420.00 |
0 |
$ 10.00 |
$ - |
Purchases: |
0 |
$ - |
$ - |
||||||
08-Aug |
50 |
$ 11.00 |
$ 550.00 |
24 |
$ 11.00 |
$ 264.00 |
26 |
$ 11.00 |
$ 286.00 |
22-Aug |
30 |
$ 12.00 |
$ 360.00 |
14 |
$ 12.00 |
$ 168.00 |
16 |
$ 12.00 |
$ 192.00 |
TOTAL |
122 |
$ 1,330.00 |
80 |
$ 852.00 |
42 |
$ 478.00 |
|||
Average Method |
Cost of Goods available for sale |
Cost of Goods Sold |
Ending Inventory |
||||||
Units |
Cost/unit |
COG for sale |
Units sold |
Cost/unit |
COGS |
Units |
Cost/unit |
Ending inventory |
|
Beginning Inventory |
42 |
$ 10.00 |
$ 420.00 |
||||||
Purchases: |
0 |
$ - |
$ - |
||||||
08-Aug |
50 |
$ 11.00 |
$ 550.00 |
||||||
22-Aug |
30 |
$ 12.00 |
$ 360.00 |
||||||
TOTAL |
122 |
$ 10.90 |
$ 1,330.00 |
80 |
$ 10.90 |
$ 872.00 |
42 |
$ 10.90 |
$ 457.80 |
Periodic Inventory System |
||||
Specific Identification Method |
Average-Cost Method |
FIFO Method |
LIFO Method |
|
Ending inventory: |
$ 478 |
$ 458 |
$ 492 |
$ 420 |
Cost of goods sold: |
$ 852 |
$ 872 |
$ 838 |
$ 910 |
>Higher Cost of Goods Sold = Lower Gross Profit = Lower Net Income = Lower Income taxes