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4. Effects of Inventory Costing Methods and Changing Prices Using the data below, show the ending...

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

Solutions

Expert Solution

  • All working forms part of the answer
  • Working for all the methods asked:

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

  • Requirement 1, based on above working

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

  • Requirement 2: LIFO would result in Lowest Income Tax because:

>Higher Cost of Goods Sold = Lower Gross Profit = Lower Net Income = Lower Income taxes


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