Question

QUALITATIVE ANALYSIS: It is advisable to document all your work and calculations as applicable.

The following are data available for Blue Grass & High Weed for the month of June:

Sales 1200 units

Beginning Inventory 300 units @ 2.00

Purchases in Chronological order 600 units @ 2.10

400 units @ 2.20

500 units @ 2.30

A) Calculate cost of goods sold and ending inventory under the following cost flow assumptions:

1) Weighted average

2) FIFO

3) LIFO

B) Assume net income using the weighted average cost-flow assumption was $6,400.

Calculate net income under FIFO and LIFO.

Answer 1

A)

1) Weighted Average :

Weighted average cost = total cost / total number of units = (300*2) + (600*2.1) + (400*2.2) + (500*2.3) / (300+600+400+500) = 2.16

Cost of Goods sold = 1200 units * 2.16 = 2,592

Ending inventory = 600*2.16 = 1,296

2) FIFO :

Cost of Goods Sold under FIFO
Quantity	Unit Cost	Total
300	2	600
600	2.1	1260
300	2.2	660
	Total	2520
Cost of goods sold under FIFO = 2,520

Ending Inventory under FIFO
Quantity	Unit Cost	Total
100	2.2	220
500	2.3	1150
	Total	1370
Ending Inventory under FIFO = 1,370

3) LIFO :

Cost of Goods Sold under LIFO
Quantity	Unit Cost	Total
300	2.1	630
400	2.2	880
500	2.3	1150
	Total	2660
Cost of goods sold under LIFO = 2,660
Ending Inventory under LIFO
Quantity	Unit Cost	Total
300	2.1	630
300	2	600
	Total	1230
Ending Inventory under LIFO = 1,230

B)

-> Calculation of Sales :

Sales - Cost of goods sold = Net Income

Sales - 2,592 = 6,400

Sales = 8,992

-> Net Income under FIFO :

Sales - Cost of Goods Sold = Net Income

8,992 - 2,520 = 6,472

-> Net Income under LIFO :

Sales - Cost of Goods Sold = Net Income

8,992 - 2,660 = 6,332