Question

In: Accounting

Perpetual Inventory Using FIFO Beginning inventory, purchases, and sales data for DVD players are as follows:...

Perpetual Inventory Using FIFO

Beginning inventory, purchases, and sales data for DVD players are as follows:

November 1 Inventory 79 units at $47
10 Sale 63 units
15 Purchase 42 units at $50
20 Sale 22 units
24 Sale 18 units
30 Purchase 20 units at $52

The business maintains a perpetual inventory system, costing by the first-in, first-out method.

a. Determine the cost of the goods sold for each sale and the inventory balance after each sale, presenting the data in the form illustrated in Exhibit 3. Under FIFO, if units are in inventory at two different costs, enter the units with the LOWER unit cost first in the Cost of Goods Sold Unit Cost column and in the Inventory Unit Cost column.

Cost of the Goods Sold Schedule
First-in, First-out Method
DVD Players
Date Quantity Purchased Purchases Unit Cost Purchases Total Cost Quantity Sold Cost of Goods Sold Unit Cost Cost of Goods Sold Total Cost Inventory Quantity Inventory Unit Cost Inventory Total Cost
Nov. 1 $ $
Nov. 10 $ $
Nov. 15 $ $
Nov. 20
Nov. 24
Nov. 30
Nov. 30 Balances $ $

b. Based upon the preceding data, would you expect the inventory to be higher or lower using the last-in, first-out method?

Solutions

Expert Solution

a) Cost of the goods sold schedule

First-in, First-out Method

DVD Players   

Date Quantity Purchased (1) Purchases Unit Cost (2) Purchases Total Cost (1*2) Quantity Sold (3) Cost of Goods Sold Unit Cost (4) Cost of Goods Sold Total Cost (3*4) Inventory Quantity (5) Inventory Unit Cost (6) Inventory Total Cost (5*6)
Nov. 1 79 units $47 $3,713
Nov. 10 63 units $47 $2,961 16 units (79-63) $47 $752
Nov. 15 42 units $50 $2,100 16 units $47 $752
42 units $50 $2,100
Nov. 20 16 units $47 $752 36 units (42-6) $50 $1,800
6 units (22-16) $50 $300
Nov. 24 18 units $50 $900 18 units (36-18) $50 $900
Nov. 30 20 units $52 $1,040 18 units $50 $900
20 units $52 $1,040
Nov. 30 Balances 103 units $4,913 38 units $1,940

Thus under FIFO method, total cost of good sold for 103 units will be $4,913 and Ending Inventory of 38 units will be values at $1,940.

b) As the prices are increasing, the ending inventory under LIFO will be valued at old prices which are lower as compared to current prices. Therefore the inventory is expected to be lower using the last-in, first-out method.


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