Answer:
Applying and Analyzing Inventory Costing Methods
Chen
a1. Cost of goods sold 2,800 units = $93,200
a2. Ending Inventory 2,000 units = $79,600
b1. Cost of goods sold 2,800 units = $106,800
b2. Ending Inventory 2,000 units = $66,000
c1. Cost of goods sold 2,800 units = $100,800 (2,800 *$36)
c2. Ending inventory 2,000 units = $72,000 (2,000 * $36)
d1. To reflect the physical flow of goods, I would choose the FIFO method.
d2. To minimize income taxes for the period only, I would choose the LIFO method.
d3. LIFO method would report the largest amount of income for the period.
NB: LIFO is chosen only for the current period. In the subsequent period the gain will reverse.
Explanation:
a) Data and Calculations:
Units Unit Cost Cost Total Cost
Beginning Inventory 1,000 $32 $32,000 $32,000
Purchase #1 1,800 34 61,200 93,200
Purchase #2 800 38 30,400 123,600
Purchase #3 1,200 41 49,200 172,800
Total 4,800 $172,800
Average cost = $172,800/4,800 = $36
Sales during the period = 2,800 units
b) FIFO (First-in, first-out) method:
Computation of:
1. Cost of goods sold
Beginning Inventory 1,000 $32 $32,000
Purchase #1 1,800 34 61,200
Cost of goods sold 2,800 $93,200
2. Ending Inventory
Purchase #2 800 38 30,400
Purchase #3 1,200 41 49,200
Ending Inventory 2,000 $79,600
c) LIFO (Last-in, first-out) method:
Computation of:
1. Cost of goods sold
Purchase #1 800 34 27,200
Purchase #2 800 38 30,400
Purchase #3 1,200 41 49,200
Cost of goods sold 2,800 $106,800
2. Ending Inventory
Beginning Inventory 1,000 $32 $32,000
Purchase #1 1,000 34 34,000
Ending Inventory 2,000 $66,000
d) Average Method:
Units Unit Cost Cost Total Cost Average Cost
Beginning Inventory 1,000 $32 $32,000 $32,000 $32
Purchase #1 1,800 34 61,200 93,200 $33.29
Purchase #2 800 38 30,400 123,600 $34.33
Purchase #3 1,200 41 49,200 172,800 $36
