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Cornerstones of Financial Accounti...

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ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
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Inventory Costing Methods

Anderson’s Department Store has the following data for inventory, purchases, and sales of merchandise for December.

Chapter 6, Problem 67APSA, Inventory Costing Methods Andersons Department Store has the following data for inventory,

Anderson’s uses a perpetual inventory system. All purchases and sales were for cash.

Required:

1. Compute cost of goods sold and the cost of ending inventory using FIFO.

2. Compute cost of goods sold and the cost of ending inventory using LIFO.

3. Compute cost of goods sold and the cost of ending inventory using the average cost method. ( Note: Use four decimal places for per-unit calculations.)

4. Prepare the journal entries to record these transactions assuming Anderson chooses to use the FIFO method.

5. CONCEPTUAL CONNECTION Which method would result in the lowest amount paid for taxes?

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=10 units @ $8 each

Purchases=22 units @ $8.80 eachPurchases=26 units @ $9.05 eachPurchases=12 units @ $9.80 each

Total Purchased units = 60

Total available quantity = 60+10= 70 units

Sales=64 units

Closing inventory =Beginning inventory + PurchaseSales=10+6064=6 units

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

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 journal entries for recording the transaction on the basis of FIFO method.

To determine

(e)

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 method for determining the lowest amount paid for tax.

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