   Chapter 6, Problem 51E ### Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

#### Solutions

Chapter
Section ### Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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# Inventory Costing MethodsOn June 1, Welding Products Company had a beginning inventory of 210 cases of welding rods that had been purchased for S88 per case. Welding Products purchased 1,150 cases at a cost of$95 per case on June 3. On June 19, the company purchased another 950 cases at a cost of$112 per case. Sales data for the welding rods are: Welding Products uses a perpetual inventory system, and the sales price of the welding rods was $130 per case.Required:1. Compute the cost of ending inventory and cost of goods sold using the FIFO method.2. Compute the cost of ending inventory and cost of goods sold using the LIFO method.3. Compute the cost of ending inventory and cost of goods sold using the average cost method.( Note: Use four decimal places for per-unit calculations and round all other numbers to the nearest dollar.)4. CONCEPTUAL CONNECTION Assume that operating expenses are$21,600 and WeldingProducts has a 30% tax rate. How much will the cash paid for income taxes differ among the three inventory methods?5. CONCEPTUAL CONNECTION Compute Welding Products' gross profit ratio (rounded to two decimal places) and inventory turnover ratio (rounded to three decimal places) under each of the three inventory costing methods. How would the choice of inventory costing method affect these ratios?

To determine

(a)

Inventory costing methods:

FIFO, LIFO and average cost method, are those method which used for calculation of closing inventory and cost of goods sold.

The cost of ending inventory and the cost of goods sold using the FIFO.

Explanation

The given information is as follows:

Total available units are:

Opening inventory=210 cases @ $88 each Purchases=1150 cases @$95 eachPurchases=950 cases @ \$112 each

Total Purchased cases = 2100

Total available cases = 210+2100= 2310 units

Sales=1965 cases

Closing inventory =Beginning inventory + PurchaseSales=210+21001965=345 cases

Calculation of Closing Inventory as per FIFO Method:

Under this method, which material purchased first, issued first for production

To determine

(b)

Inventory costing methods:

FIFO, LIFO and average cost method, are those method which used for calculation of closing inventory and cost of goods sold.

The cost of ending inventory and the cost of goods sold using the LIFO.

To determine

(c)

Inventory costing methods:

FIFO, LIFO and average cost method, are those method which used for calculation of closing inventory and cost of goods sold.

The cost of ending inventory and the cost of goods sold using the average cost method.

To determine

(d)

Inventory costing methods:

FIFO, LIFO and average cost method, are those method which used for calculation of closing inventory and cost of goods sold.

The cash paid for income as per three inventory costing methods.

To determine

(e)

Gross profit margin ratio:

The gross margin ratio is a type of profitability ratio which is used to measure the returns and earning after direct expenses and compute the ratio in respect to the sales of the business.

Inventory Turnover ratio:

The ratio which measures the efficiency of the company in managing their inventory by diving the cost of goods sold by the average inventory.

The gross margin ratio and inventory turnover ratio.

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