Question

Question 3   

The following represents the inventory transactions for Tyler Company for the month of May, 2019.

May-01                 BALANCE ON HAND    800 @        $9.00       

PURCHASES                                                                       SALES   

May-02                                                    1,000 @ $9.20                   May-05                 950 @                 $12.50

May-08                                                    400 @ $9.25                      May-10                 600 @ $13.60

May-15                                                   1,200 @ $10.00                 May-12                 300 @ $14.80

May-18                                                   700 @ $10.20                   May-20                 1,500 @               $15.00

May-25                                                   500 @ $11.50 May-26                    800 @ $16.00

May-27                                                  600 @ $12.00 May-30 300 @                $18.00

May-31                                                  200 @ $12.50                                                     4,450        

5,400       

Required:

(a) Assuming that periodic inventory records are kept, value inventory at May 31, 2019 using AVCO.          

(b) Assuming that perpetual inventory records are kept value inventory at May 31, 2019 using FIFO.           (9.5 marks)

(c) In an inflationary period, explain which inventory method (FIFO or AVCO) will show the higher net income.         (1.5 marks)

Answer 1

Correct Answer:

Requirement 1:

Value of inventory at May 31, = $ 9,621.39

	Average Cost Inventory
A	Total Units Available for sale			5400		$          54,690.00
	Units Sold			4450
	Ending Inventory Units			950
	Valuation
	Cost of Goods Sold		4450		$                         10.13	$          45,068.61
						$                         -
B	Cost of Goods Sold		4450	units		$          45,068.61
A-B	Ending Inventory		950	units		$            9,621.39

Requirement 2:

Value of inventory at May 31, = $ 11,425.00

	FIFO
A	Total Units Available for sale			5400		$          54,690.00
	Units Sold			4450
	Ending Inventory Units			950
	Valuation
	Cost of Goods Sold		800		$                           9.00	$            7,200.00
			1000		$                           9.20	$            9,200.00
			400		$                           9.25	$            3,700.00
			1200		$                         10.00	$          12,000.00
			700		$                         10.20	$            7,140.00
			350		$                         11.50	$            4,025.00
B	Cost of Goods Sold		4450	units		$          43,265.00
A-B	Ending Inventory		950	units		$          11,425.00

Requirement c:

In an inflationary period, FIFO inventory method will show the highest net income because the cost of goods sold for FIFO inventory system will be lower than AVCO inventory system.

Therefore the lower the cost of goods sold the higher the Net income.

Working:

Cost of Goods Available for sale
		Units	Cost per unit	value
Beginning Inventory		800	$                           9.00	$                   7,200.00
Purchases
02-May		1000	$                           9.20	$                   9,200.00
08-May		400	$                           9.25	$                   3,700.00
15-May		1200	$                         10.00	$                 12,000.00
18-May		700	$                         10.20	$                   7,140.00
25-May		500	$                         11.50	$                   5,750.00
27-May		600	$                         12.00	$                   7,200.00
31-May		200	$                         12.50	2500
Total		5400		$                 54,690.00

Weighted Average Cost Per unit
Units		(A)	5400
Total Cost		(B)	$                54,690.00
Average Cost		(C=B/A)	$                         10.13

End of answer.

Thanks.