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Cornerstones of Financial Accounti...

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Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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( Appendix 6B) Inventory Costing Methods: Periodic Inventory System

Jackson Company had 400 units in beginning inventory at a cost of $20 each. Jackson’s 2019

purchases were:

Chapter 6, Problem 62E, ( Appendix 6B) Inventory Costing Methods: Periodic Inventory System Jackson Company had 400 units in

Jackson uses a periodic inventory system and sold 18,500 units at $50 each during 2019.

Required:

1. Calculate the cost of ending inventory and the cost of goods sold using the FIFO, LIFO and average cost methods. ( Note: Use four decimal places for per-unit calculations and round all other numbers to the nearest dollar.)

2. Prepare income statements through gross margin using each of the costing methods in Requirement 1.

3. CONCEPTUAL CONNECTION What is the effect of each inventory costing method on income?

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 three methods.

Explanation

Periodic inventory system:

Under periodic inventory system, quantity and value of sales are recorded and sales are recorded only on value basis thus quantity of cost of goods sold and closing inventory was not available. At the year end, we calculate closing inventory with physical verification of stock and subtract with available quantity to determine actual quantity sold.

Total available units are:

Opening inventory=400 units @ $20 each

Purchases=5200 units @$24 eachPurchases=4800 units @$28 eachPurchases=8500 units @$30 each

Total available quantity = 5200+4800+8500=18500 units

Sales=18500 units @$50 each

Calculation of Closing Inventory as per FIFO Method:

Under this method, which material purchased first, issued first for production. However closing inventory includes last purchased materials in stock. Due to latest purchase in closing inventory, higher value of latest purchase effects cost of goods sold as lower and profit margin will be high.

Closing inventory Cost of Goods sold
400 @$20=$8000
5200 @$24=$124800
4800 @$28=$134400
400 @$30 = $12000 8100 @$30=$243000
Total 400 @$30 = $12000 18500 units = $510200

Calculation of closing inventory as per LIFO Method:

Under this method, which material purchased last, issued first for production. However closing inventory includes earliest purchased material in stock. Due to earliest purchase material in stock, lower value of earliest purchased effects cost of goods sold as high and profit margin will be lower

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 income statements through gross margin using the three methods.

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 income statements through gross margin using the three methods.

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