Chapter 5, Problem 14E

a.

Summary Introduction

Introduction:

Inventory is a record of finished goods of a company which the can sell to the customer, work in progress which can be transform into finish good and raw material which is a means of production. Inventory is also classified as current asset in the balance sheet and it is valued by FIFO, LIFO, specific identification and weighted average method.

To calculate: Cost of goods sold and cost assigned to ending inventory using specific identification methods for L Company.

Answer to Problem 14E

Cost assigned to ending inventory using specific identification method is $410 and cost of goods sold is $3,445.

Explanation of Solution

1. Cost assigned to total inventory using specific identification method:

Using specific identification method closing inventory of 150 units will consist

Particular	Units	Per unit ($)	Amount ($)
7th May	50	2.90	145
28th July	50	2.80	140
3rd October	50	2.50	125
Total	150		410

Cost of goods sold:

  $\begin{array}{l}\text{Cost of goods sold= Goods Available- Ending }\\ \text{=\$3,855-\$410= \$3,445}\end{array}$

Thus, ending inventory using specific identification method is $410 and cost of goods sold is $3,445.

b.

Summary Introduction

Introduction:

Inventory is a record of finished goods of a company which the can sell to the customer, work in progress which can be transform into finish good and raw material which is a means of production. Inventory is also classified as current asset in the balance sheet and it is valued by FIFO, LIFO, specific identification and weighted average method.

To compute: Cost of goods sold and cost assigned to ending inventory using weighted average method for L Company.

Answer to Problem 14E

Cost assigned to ending inventory using weighted average method is $385.5 and cost of goods sold is $3,469.50.

Explanation of Solution

Calculating the assigned amount of ending inventory according to weighted average method:

Weighted average cost is calculated as:

  $=\frac{\text{Total cost of goods available for sale}}{\text{Number of unit available}}$

  $\begin{array}{l}=\frac{\$3,855}{1500}\\ =\$2.57\end{array}$

  $\text{Ending inventory=150×\$2}\text{.57=\$385}\text{.50}$

  $\begin{array}{l}\text{Cost of goods sold= Goods Available- Ending }\\ \text{=\$3,855-\$385}\text{.50= \$3,469}\text{.50}\end{array}$

Thus, cost assigned to ending inventory using weighted average method is $385.5 and cost of goods sold is $3,469.50.

c.

Summary Introduction

Introduction:

Inventory is a record of finished goods of a company which the can sell to the customer, work in progress which can be transform into finish good and raw material which is a means of production. Inventory is also classified as current asset in the balance sheet and it is valued by FIFO, LIFO, specific identification and weighted average method.

To compute: Cost of goods sold and cost assigned to ending inventory using FIFO methods for L Company.

Answer to Problem 14E

Cost assigned to ending inventory using FIFO method is $435 and of cost of goods sold is $3420

Explanation of Solution

1. Cost assigned to ending inventory for the company L using FIFO :

Using FIFO method closing inventory of 150 units will consist:

  $\text{Ending Inventory= 150}\times \$\text{2}\text{.90=\$435}$

Cost of goods sold: $$

Particular	Units	Per unit ($)	Amount ($)
1st Jan	96	2	192
7th May	220	2.25	495
28th July	544	2.5	1360
3rd Oct	480	2.8	1344
19th Dec	10	2.9	29
Total			3420

Thus, cost assigned to ending inventory using FIFO method is $435 and of cost of goods sold is $3420.

d.

Summary Introduction

Introduction:

Inventory is a record of finished goods of a company which the can sell to the customer, work in progress which can be transform into finish good and raw material which is a means of production. Inventory is also classified as current asset in the balance sheet and it is valued by FIFO LIFO, specific identification and weighted average method.

To compute: Cost of goods sold and cost assigned to ending inventory using LIFO methods for L Company.

Answer to Problem 14E

Cost assigned to ending inventory using LIFO method is $313.50 and of cost of goods sold is $3541.5 and FIFO method of assigning cost to inventory will yield highest net income as cost of goods cold is lowest in it.

Explanation of Solution

1. Calculating the assigned amount of ending inventory according to LIFO method:

Particular	Units	Per unit ($)	Amount ($)
1st Jan	96	2	192
7th may	54	2.25	121.50
Total			313.50

Cost of goods sold:

Particular	Units	Per unit ($)	Amount ($)
7th May	166	2.25	373.5
28th July	544	2.5	1360
3rd Oct	480	2.8	1344
19th Dec	160	2.9	464
Total			3541.5

Thus, cost assigned to ending inventory using LIFO method is $313.50 and cost of goods sold is $3541.5.

FIFO method of assigning cost to inventory will yield highest Net income as cost of goods cold is lowest in it.