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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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CONTINUING PROBLEM: FRONT ROW ENTERTAINMENT

In addition to developing online fan communities, Cam and Anna believe that they could increase Front Row Entertainment’s revenue by selling live-performance DVDs at the concert.

Front Row records the following activity between May and August 2019 for one of its artists:

Chapter 6, Problem 82.2C, CONTINUING PROBLEM: FRONT ROW ENTERTAINMENT In addition to developing online fan communities, Cam

Front Row sells all of its DVDs for $15 each and uses a perpetual inventory system.

Required:

Discuss the advantages and disadvantages of each method.

To determine

Concept introduction:

FIFO stands for First in First out which means that good purchased first would be sold first.

LIFO stands for Last in First Out which means that goods that were purchased last are sold first.

Weighted average method is the one in which a weighted average is taken into account for computing cost per unit.

To explain:

Advantages and Disadvantages of LIFO, FIFO and Weighted Average.

Explanation

LIFO

Advantages

  • At the time when the prices rise, LIFO is suitable because materials are brought at current prices.
  • It helps to reduce the profits due to increase in cost of production when prices increase, which in turn helps to reduce taxes.

Disadvantages

  • When the costs and the expenses are rising especially during inflation, it will have a lower profit margin as compared to FIFO and it is difficult to find investors.

FIFO

Advantages

  • Widely accepted inventory management.
  • The companies update the prices of inventory with the current market prices.
  • Older items are sold first and it is an advantage because risk of being obsolete items is removed...

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