Question

In: Accounting

Alta Ski Company's inventory records contained the following information regarding its latest ski model. The company...

Alta Ski Company's inventory records contained the following information regarding its latest ski model. The company uses a periodic inventory system.

Beginning inventory, January 1, 2021 850 units @ $95 each
Purchases:
January 15 1,800 units @ $110 each
January 21 1,600 units @ $115 each
Sales:
January 5 800 units @ $135 each
January 22 1,200 units @ $145 each
January 29 650 units @ $150 each
Ending inventory, January 31, 2021 1,600 units


Required:

  1. 1a. Which method, FIFO or LIFO, will result in the highest cost of goods sold figure for January 2021?

  2. 1b. Which method will result in the highest ending inventory balance?

  3. 2. Compute cost of goods sold for January and the ending inventory using both the FIFO and LIFO methods.

  4. 3a. Assume that inventory costs were declining during January. The inventory purchased on January 15 had a unit cost of $85, and the inventory purchased on January 21 had a unit cost of $80. All other information is the same. Which method, FIFO or LIFO, will result in the highest cost of goods sold figure for January 2021?

  5. 3b. Which method will result in the highest ending inventory balance?

  6. 3c. Compute cost of goods sold for January and the ending inventory using both the FIFO and LIFO methods.

Solutions

Expert Solution

Correct Answer:

Requirement 1A: LIFO method will result in highest cost of goods sold.

Requirement 1B: FIFO method will result in highest ending inventory.

Requirement 2:

FIFO

LIFO

Cost of Goods Sold

$               2,78,750

$               2,99,500

Ending Inventory

$         1,84,000.00

$         1,63,250.00

Working:

Cost of Goods Available for sale

Units

Cost per unit

value

Beginning Inventory

850

$                     95.00

$                 80,750.00

Purchases

1800

$                  110.00

$             1,98,000.00

Purchases

1600

$                  115.00

$             1,84,000.00

Total

4250

$             4,62,750.00

FIFO

A

Total Units Available for sale

4250

$            4,62,750

Units Sold

2650

Ending Inventory Units

1600

Valuation

Cost of Goods Sold

850

$                         95.00

$         80,750.00

1800

$                       110.00

$            1,98,000

B

Cost of Goods Sold

2650

units

$            2,78,750

A-B

Ending Inventory

1600

units

$        1,84,000.0

LIFO

A

Total Units Available for sale

4250

$            4,62,750

Units Sold

2650

Ending Inventory Units

1600

Valuation

Cost of Goods Sold

1600

$                       115.00

         1,84,000.00

1050

$                       110.00

         1,15,500.00

B

Cost of Goods Sold

2650

units

$      2,99,500.00

A-B

Ending Inventory

1600

units

$      1,63,250.00

Requirement 3A: FIFO Method will result in highest cost of goods sold.

Requirement 3B: LIFO method will result in highest Ending Inventory Balance.

Requirement 3C:

FIFO

LIFO

Cost of Goods Sold

$           2,33,750.0

$           2,17,250.0

Ending Inventory

$           1,28,000.0

$           1,44,500.0

Working:

Cost of Goods Available for sale

Units

Cost per unit

value

Beginning Inventory

850

$                       95.0

$                   80,750.0

Purchases

1800

$                       85.0

$               1,53,000.0

Purchases

1600

$                       80.0

$               1,28,000.0

Total

4250

$               3,61,750.0

FIFO

A

Total Units Available for sale

4250

$            3,61,750

Units Sold

2650

Ending Inventory Units

1600

Valuation

Cost of Goods Sold

850

$                         95.00

$         80,750.00

1800

$                         85.00

$            1,53,000

B

Cost of Goods Sold

2650

units

$            2,33,750

A-B

Ending Inventory

1600

units

$        1,28,000.0

LIFO

A

Total Units Available for sale

4250

$            3,61,750

Units Sold

2650

Ending Inventory Units

1600

Valuation

Cost of Goods Sold

1600

$                         80.00

         1,28,000.00

1050

$                         85.00

             89,250.00

B

Cost of Goods Sold

2650

units

$      2,17,250.00

A-B

Ending Inventory

1600

units

$      1,44,500.00

End of answer.

Thanks.


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