296 Chapter 6 entors Chapter 6 Inventones 297 * CHI Jamuary 22, 360 unirs are sold at a prise of $ 40 cach for sales of $10,800 (360 units elling price of $30 per unit, Using weighted average, the cost of goods sold is 7.740 (360 units x $21.50 ner uni) Aner the sale, there remains $9, 400 of invenHory (+40 units $21.50 per unit) The $18,460 cost of the ending inventory on January 31 is made up of the most recent costs. The $26,720 cost of goods sold is made up of the beginning inventory and ther earliest costs Exhibit 6 shows the relationship of the cost of goods sold for Jamuary and the ending inventory on January 31. The January 28 sale and January 30 purchase are recorded in a similar manner. * The ending balance on lamuary 31 is $I8.280 (800 units x $22.85 per unit). Goods Available for Sale Exhibit 6 First-in, First-Out Flow of Casts Why It Matters Cost of Goods Purchases Computerized perpetual inventory systems are useful to man agers in controlling and managing inventory. For example, if Best Buy has fast selling items, they can be reordered before the stock runs out Sales pattems can also be analyzed to de termine when to mark down merchandise or when to restock seasonal merchandise Finally, computerized inventory data can be used to evaluate the effectiveness of advertising campaigns Sold Computerized Perpetual Inventory Systems Jan. 1 Your purchases are scanned when you go through the checkout ine at Best Buy The scanned data is used to identify the price and adjust the inventory levels. Computerizesd perpetual inven- rory systems are used iike this when there are many inventory transactions and a manual system is simply not feasible 1,000 units 1,000 units at $20.00 $20,000 $20,000 at $20.00 6,720 and promotions. 300 units at $22 40 Jan. 10 500 $26,720 11,200 units at $22 40 200 units at $22 40 Inventory Costing Methods Under a Periodic Inventory System Objective 4 Determine the cost of inventory under the penodic inventory system, using the FIFO LIFO, and weighted average cost methods. Inventory Jan 30 $ 4.480 When the periodic inventory system is used, only revenue is recorded each time a sale is made. No entry is made at the time of the sale to record the cost of the goods sold. At the end of the accounting period, a physical inventory is taken to determine the cost of the inventory and the cost of the goods sold. Like the perpetual inventory system, a cost flow assumption must be made when identical units are acquired at different unit costs during a period In such cases, the FIFO, LIFO, or weighted average cost method is used. 600 units 13.980 600 units at $23.30 at 13.980 $23.30 $45,180 $18.460 Last-In, First-Out Method First-In, First-Out Method When the LIFO method is used, the cost of goods on hand at the end of the period is made up of the earliest costs. Based on the same data for Item 1278 as in the FIFO example, the cost of the 800 units in ending inventory on January 31 is $16,000, which consists of 800 units from the beginning inventory at a cost of $20.00 per unit. Deducting the cost of the January 31 inventory of $16,000 from the cost of goods available for sale of $45,180 yields the cost of goods sold of $29,180, computed as follows: To illustrate the use of the FIFO method in a periodic inventory system, we use the same data for Item 1278 as in the perpetual inventory example. The beginning inventory and purchases of Item 1278 in January are as follows: IFRS See Appendix C for more information. 1.000 units at $20.00 $20.000 Inventory Purchase Purchase Jan 1 10 500 units at 22.40 11,200 13.980 600 units at 2,100 30 23.30 Beginning inventory, January 1 Purchases ($11,200 + $13,980) Cost of goods availabie for sale in January Ending inventory, January 31 Cost of goods sold $20,000 25,180 $45.180 16,000 $29.180 Availlable for sale during month $45,180 The physical count on January 31 shows that 800 units are on hand. Using the FIFO method, the cost of the goods on hand at the end of the period is made up of the most recent costs. The cost of the 800 units in the ending inventory on January 31 is determined as follows The $16,000 cost of the ending inventory on January 31 is made up of the earliest costs. The $29,180 cost of goods sold is made up of the most recent costs. Exhibit 7 shows the rela- tionship of the cost of goods sold for January and the ending inventory on January 31. Most recent costs, January 30 purchase Next most recent costs, January 10 purchase Inventory, January 31 $13,980 4.480 600 units at $23.30 200 units at 22.40 800 units $18,460 Weighted Average Cost Method Deducting the cost of the January 31 inventory of $18,460 from the cost of goods availahle for sale of $15, 180 yields the cost of goods sold of $26,720, computed as follows: The weighted average cost method uses the weighted average unit cost for determining the cost of goods sold and the ending inventory. If purchases are relatively uniform during a period, the weighted average cost method provides results that are similar to the physical flow of goods. The weighted average unit cost is determined as follows: Beginning inventory. January 1 Purchases ($11,200+ $13,980) $20,000 25,180 $45,180 Cost of goods available for sale in January Ending inventory. January 31 Cost of goods sold 18.460 $26,720 Weighted Average Unit Cost= Total Cost of Units Availatble for Sale Determining the cest of goods old using the periodic system was lilustrated in the appendix to Chapter 5 Units Available for Sale 298 Chapter 6 Inventores Chapter 6 inventories 299 Exhibit 7 Solution: Last-in, First-Out Flow of Costs Goods Available for Sale Under the periodic system, the LIFO and FIFO methods are applied at the end of the accounting period. Purchases Inventory A. First-In, First-Out Method (Periodic) Jan 1 Beginning inventory, January 1 (6 units x $50) Purchases ($770 $1,240) Cost of goods available for sale 1. Ending inventory, December 31 (16 units x $62) 2. Cost of goods sold $ 300 1,000 units at $20 00 800 units at $20.00 $16,000 2,010 Under FIFO, the cost of the ending inventory is made up $20,000 $2,310 992 $1,318 of the most recent costs. Deducting the cost of ending inventory under FIFO from the cost of goods available for sale yields the cost of B. Jan. 10 Last-In, Last-Out Method (Periodic) goods sold. 500 units Cost of Goods Sold Beginning inventory, January 1 (6 units x $50) Purchases ($770+$1,240) $ 300 11,200 500 units at $22.40 2,010 $2,310 at Cost of goods available for sale 1. Ending inventory, December 31: [(6 units x $50) + (10 units x $55)] = $300 + $550 2. Cost of goods sold $22.40 Under LIFO, the cost of the ending inventory is made up of the earliest costs. $ 4,000 11,200 850 Jan. 30 $1,460- Deducting the cost of ending inventory under LIFO from the cost of goods available for sale yields the cast of 600 units 600 units at $23.30 13,980 13,980 goods sold, at $23.30 $45, 180 $29,180 Check Up Corner To illustrate, the data for Item 1278 are used as follows: Comparing Inventory Costing Methods Objective 5 Compare and contrast the use of the three Total Cost of Units Available for Sale $45,180 Weighted Average Unit Cost = Units Available for Sale 2,100 units A different cost flow is assumed for the FIFO, LIFO, and weighted average inventory cost flow methods. As a result, the three methods normally yield different amounts for the following: inventory costing methods. = $21.51 per unit (Rounded) • Cost of goods sold • Gross profit The cost of the January 31 ending inventory is as follows: Inventory, January 31: $17,208 (800 units x $21,51) Net income • Ending inventory Deducting the cost of the January 31 inventory of $17,208 from the cost of goods available for sale of $45,180 yields the cost of goods sold of $27,972, computed as follows: Using the perpetual inventory system illustration with sales of $39,000 (1,300 units x $30), the following differences are apparent: IFRS $20,000 Beginning inventory, January 1 Purchases ($11,200 + $13,980) Cost of goods available for sale in January Ending inventory, January 31 Cost of goods sold See Appendix C for more 25,180 information. $45,180 Partial Income Statements 17,208 First-In, Weighted Average Cost $27,972 Last-In, First-Out First-Out Sales $39,000 $39,000 $39,000 Cost of goods sold: Gross profit Inventory, Jan. 31 26,720 26,900 27,200 Check Up Corner 6-2 Periodic Inventory $12,280 $12,100 $11.800 $18.460 $18.280 $17.980 The beginning inventory, purchases, and sales of Item PEAR4 for a recent year are as follows: Jan. Inventory 6 units at $50 $ 300 The preceding differences show the effect of increasing costs (prices). If costs (prices) remain the same, all three methods would yield the same results However, costs (prices) nor- mally do change. The effects of changing costs (prices) on the FIFO and LIFO methods are summarized in Exhibit 8. The weighted average cost method will always yield results between those of FIF0 and LIFO. Mar. 20 Purchase 14 units at $55 770 Oct. 30 Purchase 20 units at $62 1,240 Available for sale 40 units $2,310 There are 16 units of the item in the physical inventory at December 31, the end of the fiscal year. The company uses the periodic inventory system. Determine (1) the December 31 inventory balance and (2) the cost of goods sold for the year, using the: A. first-in, first-out (FIFO) method. B. last-in, first-out (LIFO) method. "Similar results would also occur when comparing inventory costing methods under a periodic inventory system. 200 units at $20.00
296 Chapter 6 entors Chapter 6 Inventones 297 * CHI Jamuary 22, 360 unirs are sold at a prise of $ 40 cach for sales of $10,800 (360 units elling price of $30 per unit, Using weighted average, the cost of goods sold is 7.740 (360 units x $21.50 ner uni) Aner the sale, there remains $9, 400 of invenHory (+40 units $21.50 per unit) The $18,460 cost of the ending inventory on January 31 is made up of the most recent costs. The $26,720 cost of goods sold is made up of the beginning inventory and ther earliest costs Exhibit 6 shows the relationship of the cost of goods sold for Jamuary and the ending inventory on January 31. The January 28 sale and January 30 purchase are recorded in a similar manner. * The ending balance on lamuary 31 is $I8.280 (800 units x $22.85 per unit). Goods Available for Sale Exhibit 6 First-in, First-Out Flow of Casts Why It Matters Cost of Goods Purchases Computerized perpetual inventory systems are useful to man agers in controlling and managing inventory. For example, if Best Buy has fast selling items, they can be reordered before the stock runs out Sales pattems can also be analyzed to de termine when to mark down merchandise or when to restock seasonal merchandise Finally, computerized inventory data can be used to evaluate the effectiveness of advertising campaigns Sold Computerized Perpetual Inventory Systems Jan. 1 Your purchases are scanned when you go through the checkout ine at Best Buy The scanned data is used to identify the price and adjust the inventory levels. Computerizesd perpetual inven- rory systems are used iike this when there are many inventory transactions and a manual system is simply not feasible 1,000 units 1,000 units at $20.00 $20,000 $20,000 at $20.00 6,720 and promotions. 300 units at $22 40 Jan. 10 500 $26,720 11,200 units at $22 40 200 units at $22 40 Inventory Costing Methods Under a Periodic Inventory System Objective 4 Determine the cost of inventory under the penodic inventory system, using the FIFO LIFO, and weighted average cost methods. Inventory Jan 30 $ 4.480 When the periodic inventory system is used, only revenue is recorded each time a sale is made. No entry is made at the time of the sale to record the cost of the goods sold. At the end of the accounting period, a physical inventory is taken to determine the cost of the inventory and the cost of the goods sold. Like the perpetual inventory system, a cost flow assumption must be made when identical units are acquired at different unit costs during a period In such cases, the FIFO, LIFO, or weighted average cost method is used. 600 units 13.980 600 units at $23.30 at 13.980 $23.30 $45,180 $18.460 Last-In, First-Out Method First-In, First-Out Method When the LIFO method is used, the cost of goods on hand at the end of the period is made up of the earliest costs. Based on the same data for Item 1278 as in the FIFO example, the cost of the 800 units in ending inventory on January 31 is $16,000, which consists of 800 units from the beginning inventory at a cost of $20.00 per unit. Deducting the cost of the January 31 inventory of $16,000 from the cost of goods available for sale of $45,180 yields the cost of goods sold of $29,180, computed as follows: To illustrate the use of the FIFO method in a periodic inventory system, we use the same data for Item 1278 as in the perpetual inventory example. The beginning inventory and purchases of Item 1278 in January are as follows: IFRS See Appendix C for more information. 1.000 units at $20.00 $20.000 Inventory Purchase Purchase Jan 1 10 500 units at 22.40 11,200 13.980 600 units at 2,100 30 23.30 Beginning inventory, January 1 Purchases ($11,200 + $13,980) Cost of goods availabie for sale in January Ending inventory, January 31 Cost of goods sold $20,000 25,180 $45.180 16,000 $29.180 Availlable for sale during month $45,180 The physical count on January 31 shows that 800 units are on hand. Using the FIFO method, the cost of the goods on hand at the end of the period is made up of the most recent costs. The cost of the 800 units in the ending inventory on January 31 is determined as follows The $16,000 cost of the ending inventory on January 31 is made up of the earliest costs. The $29,180 cost of goods sold is made up of the most recent costs. Exhibit 7 shows the rela- tionship of the cost of goods sold for January and the ending inventory on January 31. Most recent costs, January 30 purchase Next most recent costs, January 10 purchase Inventory, January 31 $13,980 4.480 600 units at $23.30 200 units at 22.40 800 units $18,460 Weighted Average Cost Method Deducting the cost of the January 31 inventory of $18,460 from the cost of goods availahle for sale of $15, 180 yields the cost of goods sold of $26,720, computed as follows: The weighted average cost method uses the weighted average unit cost for determining the cost of goods sold and the ending inventory. If purchases are relatively uniform during a period, the weighted average cost method provides results that are similar to the physical flow of goods. The weighted average unit cost is determined as follows: Beginning inventory. January 1 Purchases ($11,200+ $13,980) $20,000 25,180 $45,180 Cost of goods available for sale in January Ending inventory. January 31 Cost of goods sold 18.460 $26,720 Weighted Average Unit Cost= Total Cost of Units Availatble for Sale Determining the cest of goods old using the periodic system was lilustrated in the appendix to Chapter 5 Units Available for Sale 298 Chapter 6 Inventores Chapter 6 inventories 299 Exhibit 7 Solution: Last-in, First-Out Flow of Costs Goods Available for Sale Under the periodic system, the LIFO and FIFO methods are applied at the end of the accounting period. Purchases Inventory A. First-In, First-Out Method (Periodic) Jan 1 Beginning inventory, January 1 (6 units x $50) Purchases ($770 $1,240) Cost of goods available for sale 1. Ending inventory, December 31 (16 units x $62) 2. Cost of goods sold $ 300 1,000 units at $20 00 800 units at $20.00 $16,000 2,010 Under FIFO, the cost of the ending inventory is made up $20,000 $2,310 992 $1,318 of the most recent costs. Deducting the cost of ending inventory under FIFO from the cost of goods available for sale yields the cost of B. Jan. 10 Last-In, Last-Out Method (Periodic) goods sold. 500 units Cost of Goods Sold Beginning inventory, January 1 (6 units x $50) Purchases ($770+$1,240) $ 300 11,200 500 units at $22.40 2,010 $2,310 at Cost of goods available for sale 1. Ending inventory, December 31: [(6 units x $50) + (10 units x $55)] = $300 + $550 2. Cost of goods sold $22.40 Under LIFO, the cost of the ending inventory is made up of the earliest costs. $ 4,000 11,200 850 Jan. 30 $1,460- Deducting the cost of ending inventory under LIFO from the cost of goods available for sale yields the cast of 600 units 600 units at $23.30 13,980 13,980 goods sold, at $23.30 $45, 180 $29,180 Check Up Corner To illustrate, the data for Item 1278 are used as follows: Comparing Inventory Costing Methods Objective 5 Compare and contrast the use of the three Total Cost of Units Available for Sale $45,180 Weighted Average Unit Cost = Units Available for Sale 2,100 units A different cost flow is assumed for the FIFO, LIFO, and weighted average inventory cost flow methods. As a result, the three methods normally yield different amounts for the following: inventory costing methods. = $21.51 per unit (Rounded) • Cost of goods sold • Gross profit The cost of the January 31 ending inventory is as follows: Inventory, January 31: $17,208 (800 units x $21,51) Net income • Ending inventory Deducting the cost of the January 31 inventory of $17,208 from the cost of goods available for sale of $45,180 yields the cost of goods sold of $27,972, computed as follows: Using the perpetual inventory system illustration with sales of $39,000 (1,300 units x $30), the following differences are apparent: IFRS $20,000 Beginning inventory, January 1 Purchases ($11,200 + $13,980) Cost of goods available for sale in January Ending inventory, January 31 Cost of goods sold See Appendix C for more 25,180 information. $45,180 Partial Income Statements 17,208 First-In, Weighted Average Cost $27,972 Last-In, First-Out First-Out Sales $39,000 $39,000 $39,000 Cost of goods sold: Gross profit Inventory, Jan. 31 26,720 26,900 27,200 Check Up Corner 6-2 Periodic Inventory $12,280 $12,100 $11.800 $18.460 $18.280 $17.980 The beginning inventory, purchases, and sales of Item PEAR4 for a recent year are as follows: Jan. Inventory 6 units at $50 $ 300 The preceding differences show the effect of increasing costs (prices). If costs (prices) remain the same, all three methods would yield the same results However, costs (prices) nor- mally do change. The effects of changing costs (prices) on the FIFO and LIFO methods are summarized in Exhibit 8. The weighted average cost method will always yield results between those of FIF0 and LIFO. Mar. 20 Purchase 14 units at $55 770 Oct. 30 Purchase 20 units at $62 1,240 Available for sale 40 units $2,310 There are 16 units of the item in the physical inventory at December 31, the end of the fiscal year. The company uses the periodic inventory system. Determine (1) the December 31 inventory balance and (2) the cost of goods sold for the year, using the: A. first-in, first-out (FIFO) method. B. last-in, first-out (LIFO) method. "Similar results would also occur when comparing inventory costing methods under a periodic inventory system. 200 units at $20.00
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Topic Video
Question
From the following figures (A) calculate the closing stock in trade that would be shown using (i)FIFO (ii)LIFO (iii)AVCO methods on a PERIODIC inventory basis. (B)Then prepare an income statement using (i)FIFO (ii)LIFO (iii)AVCO methods.
Bought Sold
January 120 at $16each June 125 at $22 each
April 80 at $18 each November 210 at $25 each
October 150 at $19 each
Attached pictures of the Textbook to help with answering the question
Transcribed Image Text:296
Chapter 6 entors
Chapter 6 Inventones
297
* CHI Jamuary 22, 360 unirs are sold at a prise of $ 40 cach for sales of $10,800 (360 units
elling price of $30 per unit, Using weighted average, the cost of goods sold is
7.740 (360 units x $21.50 ner uni) Aner the sale, there remains $9, 400 of invenHory
(+40 units $21.50 per unit)
The $18,460 cost of the ending inventory on January 31 is made up of the most recent
costs. The $26,720 cost of goods sold is made up of the beginning inventory and ther earliest
costs Exhibit 6 shows the relationship of the cost of goods sold for Jamuary and the ending
inventory on January 31.
The January 28 sale and January 30 purchase are recorded in a similar manner.
* The ending balance on lamuary 31 is $I8.280 (800 units x $22.85 per unit).
Goods
Available
for Sale
Exhibit 6
First-in, First-Out
Flow of Casts
Why It Matters
Cost of
Goods
Purchases
Computerized perpetual inventory systems are useful to man
agers in controlling and managing inventory. For example, if
Best Buy has fast selling items, they can be reordered before
the stock runs out Sales pattems can also be analyzed to de
termine when to mark down merchandise or when to restock
seasonal merchandise Finally, computerized inventory data can
be used to evaluate the effectiveness of advertising campaigns
Sold
Computerized Perpetual Inventory Systems
Jan. 1
Your purchases are scanned when you go through the checkout
ine at Best Buy The scanned data is used to identify the price
and adjust the inventory levels. Computerizesd perpetual inven-
rory systems are used iike this when there are many inventory
transactions and a manual system is simply not feasible
1,000
units
1,000 units
at $20.00
$20,000
$20,000
at
$20.00
6,720
and promotions.
300 units
at $22 40
Jan. 10
500
$26,720
11,200
units
at
$22 40
200 units at $22 40
Inventory Costing Methods Under
a Periodic Inventory System
Objective 4
Determine the
cost of inventory
under the penodic
inventory system,
using the FIFO
LIFO, and weighted
average cost
methods.
Inventory
Jan 30
$ 4.480
When the periodic inventory system is used, only revenue is recorded each time a sale is made.
No entry is made at the time of the sale to record the cost of the goods sold. At the end of
the accounting period, a physical inventory is taken to determine the cost of the inventory and
the cost of the goods sold.
Like the perpetual inventory system, a cost flow assumption must be made when identical
units are acquired at different unit costs during a period In such cases, the FIFO, LIFO, or
weighted average cost method is used.
600
units
13.980
600 units at $23.30
at
13.980
$23.30
$45,180
$18.460
Last-In, First-Out Method
First-In, First-Out Method
When the LIFO method is used, the cost of goods on hand at the end of the period is made
up of the earliest costs. Based on the same data for Item 1278 as in the FIFO example, the
cost of the 800 units in ending inventory on January 31 is $16,000, which consists of 800 units
from the beginning inventory at a cost of $20.00 per unit.
Deducting the cost of the January 31 inventory of $16,000 from the cost of goods available
for sale of $45,180 yields the cost of goods sold of $29,180, computed as follows:
To illustrate the use of the FIFO method in a periodic inventory system, we use the same data
for Item 1278 as in the perpetual inventory example. The beginning inventory and purchases
of Item 1278 in January are as follows:
IFRS
See Appendix C for more
information.
1.000 units at
$20.00
$20.000
Inventory
Purchase
Purchase
Jan 1
10
500 units at
22.40
11,200
13.980
600 units at
2,100
30
23.30
Beginning inventory, January 1
Purchases ($11,200 + $13,980)
Cost of goods availabie for sale in January
Ending inventory, January 31
Cost of goods sold
$20,000
25,180
$45.180
16,000
$29.180
Availlable for sale during month
$45,180
The physical count on January 31 shows that 800 units are on hand. Using the FIFO method,
the cost of the goods on hand at the end of the period is made up of the most recent costs.
The cost of the 800 units in the ending inventory on January 31 is determined as follows
The $16,000 cost of the ending inventory on January 31 is made up of the earliest costs.
The $29,180 cost of goods sold is made up of the most recent costs. Exhibit 7 shows the rela-
tionship of the cost of goods sold for January and the ending inventory on January 31.
Most recent costs, January 30 purchase
Next most recent costs, January 10 purchase
Inventory, January 31
$13,980
4.480
600 units at
$23.30
200 units at
22.40
800 units
$18,460
Weighted Average Cost Method
Deducting the cost of the January 31 inventory of $18,460 from the cost of goods availahle
for sale of $15, 180 yields the cost of goods sold of $26,720, computed as follows:
The weighted average cost method uses the weighted average unit cost for determining the cost
of goods sold and the ending inventory. If purchases are relatively uniform during a period, the
weighted average cost method provides results that are similar to the physical flow of goods.
The weighted average unit cost is determined as follows:
Beginning inventory. January 1
Purchases ($11,200+ $13,980)
$20,000
25,180
$45,180
Cost of goods available for sale in January
Ending inventory. January 31
Cost of goods sold
18.460
$26,720
Weighted Average Unit Cost=
Total Cost of Units Availatble for Sale
Determining the cest of goods old using the periodic system was lilustrated in the appendix to Chapter 5
Units Available for Sale
![298
Chapter 6 Inventores
Chapter 6 inventories
299
Exhibit 7
Solution:
Last-in, First-Out
Flow of Costs
Goods
Available
for Sale
Under the periodic system, the LIFO and FIFO methods are applied at the end of the accounting period.
Purchases
Inventory
A.
First-In, First-Out Method (Periodic)
Jan 1
Beginning inventory, January 1 (6 units x $50)
Purchases ($770 $1,240)
Cost of goods available for sale
1. Ending inventory, December 31 (16 units x $62)
2. Cost of goods sold
$ 300
1,000
units
at
$20 00
800 units at $20.00
$16,000
2,010
Under FIFO, the cost of the ending inventory is made up
$20,000
$2,310
992
$1,318
of the most recent costs.
Deducting the cost of ending inventory under FIFO from
the cost of goods available for sale yields the cost of
B.
Jan. 10
Last-In, Last-Out Method (Periodic)
goods sold.
500
units
Cost of
Goods
Sold
Beginning inventory, January 1 (6 units x $50)
Purchases ($770+$1,240)
$ 300
11,200
500 units at $22.40
2,010
$2,310
at
Cost of goods available for sale
1. Ending inventory, December 31:
[(6 units x $50) + (10 units x $55)] = $300 + $550
2. Cost of goods sold
$22.40
Under LIFO, the cost of the ending inventory is made up
of the earliest costs.
$ 4,000
11,200
850
Jan. 30
$1,460-
Deducting the cost of ending inventory under LIFO from
the cost of goods available for sale yields the cast of
600
units
600 units at $23.30
13,980
13,980
goods sold,
at
$23.30
$45, 180
$29,180
Check Up Corner
To illustrate, the data for Item 1278 are used as follows:
Comparing Inventory Costing Methods
Objective 5
Compare and contrast
the use of the three
Total Cost of Units Available for Sale
$45,180
Weighted Average Unit Cost =
Units Available for Sale
2,100 units
A different cost flow is assumed for the FIFO, LIFO, and weighted average inventory cost flow
methods. As a result, the three methods normally yield different amounts for the following:
inventory costing
methods.
= $21.51 per unit (Rounded)
• Cost of goods sold
• Gross profit
The cost of the January 31 ending inventory is as follows:
Inventory, January 31: $17,208 (800 units x $21,51)
Net income
• Ending inventory
Deducting the cost of the January 31 inventory of $17,208 from the cost of goods available
for sale of $45,180 yields the cost of goods sold of $27,972, computed as follows:
Using the perpetual inventory system illustration with sales of $39,000 (1,300 units x $30), the
following differences are apparent:
IFRS
$20,000
Beginning inventory, January 1
Purchases ($11,200 + $13,980)
Cost of goods available for sale in January
Ending inventory, January 31
Cost of goods sold
See Appendix C for more
25,180
information.
$45,180
Partial Income Statements
17,208
First-In,
Weighted
Average Cost
$27,972
Last-In,
First-Out
First-Out
Sales
$39,000
$39,000
$39,000
Cost of goods sold:
Gross profit
Inventory, Jan. 31
26,720
26,900
27,200
Check Up Corner 6-2
Periodic Inventory
$12,280
$12,100
$11.800
$18.460
$18.280
$17.980
The beginning inventory, purchases, and sales of Item PEAR4 for a recent year are as follows:
Jan.
Inventory
6 units at $50
$ 300
The preceding differences show the effect of increasing costs (prices). If costs (prices)
remain the same, all three methods would yield the same results However, costs (prices) nor-
mally do change. The effects of changing costs (prices) on the FIFO and LIFO methods are
summarized in Exhibit 8. The weighted average cost method will always yield results between
those of FIF0 and LIFO.
Mar. 20
Purchase
14 units at $55
770
Oct. 30
Purchase
20 units at $62
1,240
Available for sale
40 units
$2,310
There are 16 units of the item in the physical inventory at December 31, the end of the fiscal year. The company
uses the periodic inventory system. Determine (1) the December 31 inventory balance and (2) the cost of goods
sold for the year, using the:
A. first-in, first-out (FIFO) method.
B. last-in, first-out (LIFO) method.
"Similar results would also occur when comparing inventory costing methods under a periodic inventory system.
200 units at $20.00](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F1349de43-fe9d-43cd-9e1f-9d26fd3ef7bd%2F229e8655-cba9-4ab9-833c-f4f7b12e4823%2F6t7u48.jpeg&w=3840&q=75)
Transcribed Image Text:298
Chapter 6 Inventores
Chapter 6 inventories
299
Exhibit 7
Solution:
Last-in, First-Out
Flow of Costs
Goods
Available
for Sale
Under the periodic system, the LIFO and FIFO methods are applied at the end of the accounting period.
Purchases
Inventory
A.
First-In, First-Out Method (Periodic)
Jan 1
Beginning inventory, January 1 (6 units x $50)
Purchases ($770 $1,240)
Cost of goods available for sale
1. Ending inventory, December 31 (16 units x $62)
2. Cost of goods sold
$ 300
1,000
units
at
$20 00
800 units at $20.00
$16,000
2,010
Under FIFO, the cost of the ending inventory is made up
$20,000
$2,310
992
$1,318
of the most recent costs.
Deducting the cost of ending inventory under FIFO from
the cost of goods available for sale yields the cost of
B.
Jan. 10
Last-In, Last-Out Method (Periodic)
goods sold.
500
units
Cost of
Goods
Sold
Beginning inventory, January 1 (6 units x $50)
Purchases ($770+$1,240)
$ 300
11,200
500 units at $22.40
2,010
$2,310
at
Cost of goods available for sale
1. Ending inventory, December 31:
[(6 units x $50) + (10 units x $55)] = $300 + $550
2. Cost of goods sold
$22.40
Under LIFO, the cost of the ending inventory is made up
of the earliest costs.
$ 4,000
11,200
850
Jan. 30
$1,460-
Deducting the cost of ending inventory under LIFO from
the cost of goods available for sale yields the cast of
600
units
600 units at $23.30
13,980
13,980
goods sold,
at
$23.30
$45, 180
$29,180
Check Up Corner
To illustrate, the data for Item 1278 are used as follows:
Comparing Inventory Costing Methods
Objective 5
Compare and contrast
the use of the three
Total Cost of Units Available for Sale
$45,180
Weighted Average Unit Cost =
Units Available for Sale
2,100 units
A different cost flow is assumed for the FIFO, LIFO, and weighted average inventory cost flow
methods. As a result, the three methods normally yield different amounts for the following:
inventory costing
methods.
= $21.51 per unit (Rounded)
• Cost of goods sold
• Gross profit
The cost of the January 31 ending inventory is as follows:
Inventory, January 31: $17,208 (800 units x $21,51)
Net income
• Ending inventory
Deducting the cost of the January 31 inventory of $17,208 from the cost of goods available
for sale of $45,180 yields the cost of goods sold of $27,972, computed as follows:
Using the perpetual inventory system illustration with sales of $39,000 (1,300 units x $30), the
following differences are apparent:
IFRS
$20,000
Beginning inventory, January 1
Purchases ($11,200 + $13,980)
Cost of goods available for sale in January
Ending inventory, January 31
Cost of goods sold
See Appendix C for more
25,180
information.
$45,180
Partial Income Statements
17,208
First-In,
Weighted
Average Cost
$27,972
Last-In,
First-Out
First-Out
Sales
$39,000
$39,000
$39,000
Cost of goods sold:
Gross profit
Inventory, Jan. 31
26,720
26,900
27,200
Check Up Corner 6-2
Periodic Inventory
$12,280
$12,100
$11.800
$18.460
$18.280
$17.980
The beginning inventory, purchases, and sales of Item PEAR4 for a recent year are as follows:
Jan.
Inventory
6 units at $50
$ 300
The preceding differences show the effect of increasing costs (prices). If costs (prices)
remain the same, all three methods would yield the same results However, costs (prices) nor-
mally do change. The effects of changing costs (prices) on the FIFO and LIFO methods are
summarized in Exhibit 8. The weighted average cost method will always yield results between
those of FIF0 and LIFO.
Mar. 20
Purchase
14 units at $55
770
Oct. 30
Purchase
20 units at $62
1,240
Available for sale
40 units
$2,310
There are 16 units of the item in the physical inventory at December 31, the end of the fiscal year. The company
uses the periodic inventory system. Determine (1) the December 31 inventory balance and (2) the cost of goods
sold for the year, using the:
A. first-in, first-out (FIFO) method.
B. last-in, first-out (LIFO) method.
"Similar results would also occur when comparing inventory costing methods under a periodic inventory system.
200 units at $20.00
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