Question

E7-14 Analyzing and Interpreting the Effects of the LIFO/FIFO Choice on Inventory Turnover Ratio [LO 7-2, LO 7-3, LO 7-5]

Simple Plan Enterprises uses a periodic inventory system. Its records showed the following:

Inventory, December 31, using FIFO ? 40 Units @ $15 = $600

Inventory, December 31, using LIFO ? 40 Units @ $11 = $440

Transactions in the Following Year	Units			Unit Cost			Total Cost
Purchase, January 9		52		$	16			832
Purchase, January 20		102			17			1,734
Sale, January 11, (at $39 per unit)		82
Sale, January 27 (at $40 per unit)		58

Required:
1.	Compute the number and cost of goods available for sale, the cost of ending inventory, and the cost of goods sold under FIFO and LIFO.

       

2.	Compute the inventory turnover ratio under the FIFO and LIFO inventory costing methods. (Round your answers to 2 decimal places.)

       

Answer 1

1

LIFO Method
Periodic Inventory method
Cost of goods available for sale
Date	Explanation	Units	Per unit	Total
Jan.1	Beginning inventory	40	11	440
jan.9	Purchase	52	16	832
Jan.20	Purchase	102	17	1,734
	Total	194		3,006
Ending inventory
Date	Units	Per unit	Total
Jan.1	40	11	440
jan.9	14	16	224
Total	54		664
Cost of goods available for sale			3,006
Less: Ending inventory			664
Cost of goods sold			2,342

FIFO Method
Periodic Inventory method
Cost of goods available for sale
Date	Explanation	Units	Per unit	Total
Jan.1	Beginning inventory	40	15	600
jan.9	Purchase	52	16	832
Jan.20	Purchase	102	17	1,734
	Total	194		3,166
Ending inventory
Date	Units	Per unit	Total
Jan.20	102	17	1,734
Total	102		1,734
Cost of goods available for sale			3,166
Less: Ending inventory			1,734
Cost of goods sold			1,432

2

	Opening balance	Closing balance	Average inventory	Cost of goods sold	Inventory turnover
	a	b	c= (a+b)/2	d	e= d/c
LIFO	440	664	552	2342	4.24
FIFO	600	1734	1167	1432	1.23