Concept explainers
Various inventory costing methods
• LO8–1, LO8–4
Ferris Company began 2018 with 6,000 units of its principal product. The cost of each unit is $8. Merchandise transactions for the month of January 2018 are as follows:
Sales | |
Date of Sale | Units |
Jan. 5 | 3,000 |
Jan. 12 | 2,000 |
Jan. 20 | 4,000 |
Total | 9,000 |
8,000 units were on hand at the end of the month.
Required:
Calculate January’s ending inventory and cost of goods sold for the month using each of the following alternatives:
1. FIFO, periodic system
2. LIFO, periodic system
3. LIFO, perpetual system
4. Average cost, periodic system
5. Average cost, perpetual system
1.
Periodic Inventory System: It is a system in which the inventory is updated in the accounting records on a periodic basis such as at the end of each month, quarter or year. In other words, it is an accounting method which is used to determine the amount of inventory at the end of each accounting period.
Perpetual Inventory System refers to the inventory system that maintains the detailed records of every inventory transactions related to purchases and sales on a continuous basis. It shows the exact on-hand-inventory at any point of time.
In First-in-First-Out method, the cost of initial purchased items are sold first. The value of the ending inventory consists the recent purchased items.
In Last-in-First-Out method, the cost of last purchased items are sold first. The value of the closing stock consists the initial purchased items.
In Weighted-Average Cost Method the cost of inventory is priced at the average rate of the goods available for sale. Following is the mathematical representation:
To Compute: The ending inventory and cost of goods sold for the month of January under FIFO.
Explanation of Solution
Calculate the total cost and units of goods available for sales.
Table (1)
Calculate the cost of ending inventory under FIFO, periodic system.
Calculation of Cost of Ending Inventory (FIFO) | |||
Details | Number of Units | Rate per Unit ($) | Total Cost ($) |
January 18 | 6,000 | 10 | 60,000 |
January 10 | 2,000 | 9 | 18,000 |
Ending Inventory | 8,000 | 78,000 |
Table (2)
Working note:
Calculate the Cost of Goods Sold.
Therefore, the cost of goods sold in the FIFO method is $78,000.
2.
To Compute: The ending inventory and cost of goods sold for the month of January under LIFO.
Explanation of Solution
Calculate the cost of ending inventory under LIFO, periodic system.
Calculation of Cost of Ending Inventory (LIFO) | |||
Details | Number of Units | Rate per Unit ($) | Total Cost ($) |
Beginning Balance | 6,000 | 8 | 48,000 |
January 10 | 2,000 | 9 | 18,000 |
Ending Inventory | 8,000 | 66,000 |
Table (3)
Therefore, the cost of ending inventory in the LIFO method is $66,000.
Calculate the Cost of Goods Sold.
Therefore, the cost of goods sold in the LIFO method is $87,000.
3.
To Compute: The ending inventory and cost of goods sold for the month of January under LIFO perpetual system.
Explanation of Solution
Calculate the cost of ending inventory under LIFO, perpetual system.
Table (4)
Therefore, the cost of ending merchandised inventory and cost of goods sold are $71,000 and $82,000 respectively.
4.
To Compute: The ending inventory and cost of goods sold for the month of January under average cost periodic system.
Explanation of Solution
Calculate the cost of ending inventory under average cost, periodic system.
Number of units in ending inventory = 8,000
Weighted average cost per unit = $9 (1)
Working Note:
Calculate the Weighted-average cost.
Therefore, the cost of ending inventory in the Average-cost method is $72,000.
Calculate the Cost of Goods Sold.
Therefore, the cost of goods sold in the Average-cost method is $81,000.
5.
To Compute: The ending inventory and cost of goods sold for the month of January under average cost perpetual system.
Explanation of Solution
Calculate the cost of ending inventory under average cost, perpetual system.
Table (5)
Working Notes:
Calculate the Weighted-average cost after the January 10th purchase.
Calculate the Weighted-average cost after the January 18th purchase.
Therefore, the cost of ending merchandised inventory and cost of goods sold are 74,500 and $78,500 respectively.
Want to see more full solutions like this?
Chapter 8 Solutions
INTERMEDIATE ACCT.(LL)W/CONNECT ACCESS
- Lower-of-cost-or-market inventory Data on the physical inventory of Katus Products Co. as of December 31 follows: Description Inventory Quantity Market Value per Unit (Net Realizable Value) A54 37 56 C77 24 178 F66 30 132 H83 21 545 K12 375 5 Q58 90 18 S36 8 235 V97 140 20 Y88 17 744 Quantity and cost data from the last purchases invoice of the year and the next-to-the-last purchases invoice are summarized as follows: Description Last Purchases Invoice Next-to-the-Last Purchases Invoice Quantity Purchased Unit Cost Quantity Purchased Unit Cost A54 30 60 40 58 C77 25 174 15 180 F66 20 130 15 128 H83 6 547 15 540 K12 500 6 500 7 Q58 75 25 80 26 S36 5 256 4 260 V97 100 17 115 16 Y88 10 750 8 740 Instructions Determine the inventory at cost and also at the lower of cost or market, using the first-in, first-out method. Record the appropriate unit costs on the inventory sheet, and complete the pricing of the inventory. When there are two different unit costs applicable to an item, proceed as follows: 1. Draw a line through the quantity, and insert the quantity and unit cost of the last purchase. 2. On the following line, insert the quantity and unit cost of the next-to-the-last purchase. 3. Total the cost and market columns and insert the lower of the two totals in the LCM column. The first item on the inventory sheet has been completed as an example. Inventory Sheet December 31 Description Unit Inventory Quantity Cost per Unit Market Value per Unit(Net Realizable Value) Total Cost Market LCM A54 37 30 60 56 1,800 1,680 7 58 56 406 392 2,206 2,072 2,072arrow_forward55.XXX Company uses the average cost retail method to estimate its inventory. Data relating to the inventory at December 31, 2020 are: Cost Retail Inventory, January 1 P 2,000,000 P3,000,000 Purchases 10,600,000 14,000,000 Net markups 1,600,000 Net markdowns 600,000 Sales 12,000,000 Estimated normal shoplifting losses 400,000 Estimated normal shrinkage is 5% of sales Trinidad’s cost of goods sold for the year ended December 31, 2019 isarrow_forwardExercise 6-5A Calculate inventory amounts when costs are declining (LO6-3) Skip to question [The following information applies to the questions displayed below.] During the year, Trombley Incorporated has the following inventory transactions. Date Transaction Numberof Units UnitCost Total Cost Jan. 1 Beginning inventory 30 $ 32 $ 960 Mar. 4 Purchase 35 31 1,085 Jun. 9 Purchase 40 30 1,200 Nov. 11 Purchase 40 28 1,120 145 $ 4,365 For the entire year, the company sells 111 units of inventory for $40 each. Exercise 6-5A Part 3 3. Using weighted-average cost, calculate ending inventory, cost of goods sold, sales revenue, and gross profit. (Round "Average Cost per unit" to 2 decimal places and all other answers to the nearest whole number.)arrow_forward
- Exercise 6-5A Calculate inventory amounts when costs are declining (LO6-3) Skip to question [The following information applies to the questions displayed below.] During the year, Trombley Incorporated has the following inventory transactions. Date Transaction Numberof Units UnitCost Total Cost Jan. 1 Beginning inventory 30 $ 32 $ 960 Mar. 4 Purchase 35 31 1,085 Jun. 9 Purchase 40 30 1,200 Nov. 11 Purchase 40 28 1,120 145 $ 4,365 For the entire year, the company sells 111 units of inventory for $40 each. 1. Using FIFO, calculate ending inventory, cost of goods sold, sales revenue, and gross profit.arrow_forwardEA6. LO 10.2 Akira Company had the following transactions for the month. Number of Units cost per unit Beginning inventory 150 $1,500 Purchased Mar. 31 160 1,920 Purchased Oct. 15 130 1,950 Total goods available for sale 440 5,370 Ending inventory 50 ? Calculate the gross margin for the period for each of the following cost allocation methods, using periodic inventory updating. Assume that all units were sold for $25 each. Provide your calculations. A first-in, first-out (FIFO). B. last-in, first-out (LIFO) C. weighted average (AVG)arrow_forwardP6.11 (LO 6), AP Rayre Books uses the retail inventory method to estimate its monthly ending invento- ries. The following information is available for two of its departments at October 31, 2022. Hardcovers Paperbacks Cost Retail Cost Retail Beginning inventory $ 420,000 $ 640,000 $ 280,000 $ 360,000 Purchases 2,135,000 3,200,000 1,155,000 1,540,000 Freight-in 24,000 12,000 Purchase discounts 44,000 22,000 Net sales 3,100,000 1,570,000 At December 31, Rayre Books takes a physical inventory at retail. The actual retail values of the inven- tories in each department are Hardcovers $744,000 and Paperbacks $335,000. Instructions a. Determine the estimated cost ofthe ending inventory for each department at October 31, 2022, using the retail inventory method. b. Compute the ending inventory at cost for each department atDecember 31, assuming the cost-to- retail ratios for the year are 65% for Hardcovers and 75% for Paperbacks.arrow_forward
- E8.12 (LO 3) (FIFO, LIFO, Average-Cost Inventory) Shania Twain Company was formed onDecember 1, 2019. The following information is available from Twain’s inventory records for Product BAP. Units Unit CostJanuary 1, 2020 (beginning inventory) 600 $ 8.00Purchases:January 5, 2020 1,200 9.00January 25, 2020 1,300 10.00February 16, 2020 800 11.00March 26, 2020 600 12.00 A physical inventory on March 31, 2020, shows 1,600 units on hand.InstructionsPrepare schedules to compute the ending inventory at March 31, 2020, under each of the following inventory methods.a. FIFO b. LIFO. c. Weighted-average (round unit costs to two decimal places)arrow_forwardQ 29 A company just starting business uses a periodic inventory system. A physical count of merchandise inventory on June 30- reveals that there are 320 units on hand. The company made the following three inventory purchases in June. # of Units Unit Cost Total Costs June 1 150 $10 $1,500 June 10 200 $9 $1,800 June 15 250 $8 $2,000 Using the LIFO inventory method, the value of the Ending Inventory on June 30 is __________ . Select one: a. $ 2,070 b. $ 3,030 c. $ 2,670 d. $ 2,630arrow_forwardExercise 8-19 (Static) Perpetual FIFO adjusted to periodic LIFO; LIFO reserve [LO8-1, 8-4, 8-6] To more efficiently manage its inventory, Treynor Corporation maintains its internal inventory records using first-in, first-out (FIFO) under a perpetual inventory system. The following information relates to its merchandise inventory during the year: Jan. 1 Inventory on hand—20,000 units; cost $12.20 each. Feb. 12 Purchased 70,000 units for $12.50 each. Apr. 30 Sold 50,000 units for $20.00 each. Jul. 22 Purchased 50,000 units for $12.80 each. Sep. 9 Sold 70,000 units for $20.00 each. Nov. 17 Purchased 40,000 units for $13.20 each. Dec. 31 Inventory on hand—60,000 units. Required:1. Determine the amount Treynor would calculate internally for ending inventory and cost of goods sold using first-in, first-out (FIFO) under a perpetual inventory system.2. Determine the amount Treynor would report externally for ending inventory and cost of goods…arrow_forward
- PROBLEM 21: A physical inventory taken on December 31, 2021 resulted in an ending inventoryof P1,440,000. San Salvador Company suspects some inventory may have been takenbyemployees. To estimate the cost of missing inventory, the following were gathered: Inventory, December 31, 2020 P 1,280,000 Purchases during 2021 5,640,000 Cash sales during 2021 1,400,000 Shipment received on December 26, 2021, included in physical inventory but not recorded as purchases 40,000 Deposits made with suppliers, entered as purchases. Goods were not received in 2021 80,000 Collections on accounts receivable, 2021 7,200,000 Accounts receivable, January 1, 2021 1,000,000 Accounts receivable, December 31, 2021 1,200,000 Gross profit percentage on sales 40% 27. At December 31, 2021, what is the estimated cost of missing inventory?arrow_forwardProblem 9-13 (Algo) Retail inventory method; various applications [LO9-3, 9-4, 9-5] Skip to question [The following information applies to the questions displayed below.] On January 1, 2021, Pet Friendly Stores adopted the retail inventory method. Inventory transactions at both cost and retail, and cost indexes for 2021 and 2022 are as follows: 2021 2022 Cost Retail Cost Retail Beginning inventory $ 162,500 $ 250,000 Purchases 800,000 1,084,000 $ 680,000 $ 1,063,000 Purchase returns 7,000 12,150 2,000 4,300 Freight-in 12,500 2,000 Net markups 6,900 11,800 Net markdowns 4,750 8,000 Net sales to customers 950,000 722,000 Sales to employees (net of 25% discount) 22,500 22,500 Normal spoilage 4,200 6,900 Price Index: January 1, 2021 1.00…arrow_forwardProblem 12a: Fullerton IV Company has had a policy of reordering inventory every 30 days. Using the data below, what is the economic order quantity EOQ? Ordering cost F $10 per order Carrying cost C 20% of purchase price Purchase price P $10 per unit Total sales per year S 1,000 units Safety stock 0 Days per year 360 Problem 12b: Continuing with the previous question, what is the total inventory cost, TIC? Problem 12c: Continuing with the previous questions, how many orders should Fullerton place per year?arrow_forward
- Corporate Financial AccountingAccountingISBN:9781337398169Author:Carl Warren, Jeff JonesPublisher:Cengage LearningCorporate Financial AccountingAccountingISBN:9781305653535Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage LearningFinancial & Managerial AccountingAccountingISBN:9781337119207Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage Learning