In: Finance
The records at the end of January of the current year for Young Company showed the following for a particular kind of merchandise: Beginning Inventory at FIFO: 14 Units @ $16 = $224 Beginning Inventory at LIFO: 14 Units @ $12 = $168 Transactions Units Unit Cost Total Cost Purchase, January 9 28 $ 14 $ 392 Purchase, January 20 54 19 1,026 Sale, January 21 (at $42 per unit) 37 Sale, January 27 (at $43 per unit) 27
Compute the inventory turnover ratio for the month of January under the FIFO and LIFO inventory costing methods. (Do not round intermediate calculations and round your final answers to 2 decimal places.)
Answer:
FIFO:
Beginning inventory = 14 units @ $16.00 per unit
Beginning inventory = $224
Purchases = 28 units @ $14.00 per unit + 54 units @ $19.00 per
unit
Purchases = $392 + $1,026
Purchases = $1,418
Cost of goods available for sale = Beginning inventory +
Purchases
Cost of goods available for sale = $224 + $1,418
Cost of goods available for sale = $1,642
Number of units sold = 37 + 27
Number of units sold = 64
Cost of goods sold = 14 * $16.00 + 28 * $14.00 + 22 *
$19.00
Cost of goods sold = $1,034
Ending inventory = Cost of goods available for sale - Cost of
goods sold
Ending inventory = $1,642 - $1,034
Ending inventory = $608
Average inventory = (Ending inventory + Beginning inventory) /
2
Average inventory = ($608 + $224) / 2
Average inventory = $416
Inventory turnover = Cost of goods sold / Average
inventory
Inventory turnover = $1,034 / $416
Inventory turnover = 2.49 times
LIFO:
Beginning inventory = 14 units @ $12.00 per unit
Beginning inventory = $168
Purchases = 28 units @ $14.00 per unit + 54 units @ $19.00 per
unit
Purchases = $392 + $1,026
Purchases = $1,418
Cost of goods available for sale = Beginning inventory +
Purchases
Cost of goods available for sale = $168 + $1,418
Cost of goods available for sale = $1,586
Number of units sold = 37 + 27
Number of units sold = 64
Cost of goods sold = 54 * $19.00 + 10 * $14.00
Cost of goods sold = $1,166
Ending inventory = Cost of goods available for sale - Cost of
goods sold
Ending inventory = $1,586 - $1,166
Ending inventory = $420
Average inventory = (Ending inventory + Beginning inventory) /
2
Average inventory = ($420 + $168) / 2
Average inventory = $294
Inventory turnover = Cost of goods sold / Average
inventory
Inventory turnover = $1,166 / $294
Inventory turnover = 3.97 times