Question

Dunbar Distribution markets CDs of numerous performing artists. At the beginning of March, Dunbar had in

Answer 1

Answer:

Dunbar Distribution

Opening inventories 2,500 CDs @ $7 = $17,500

Purchases/additions to inventory:

1. Mar 5 - 2,000 CDs @ $8  = $16,000
2. Mar 13 - 3,500 CDs @ $9 = $31,500
3. Mar 21 - 5,000 CDs @ 10$ = $50,000
4. Mar 26 - 2,000 CDs @ $11  = $22,000

Total Inventory added 12,500  @ $9.56  = $119,500

A. Cost of Goods available for sale is $119,500 + $17,500 = $137,000

B.i. Closing Inventory is:

Under FIFO Cost Method (If 12,000 units was sold):

Cost of goods available for sale minus (Opening Inventory  + item i and ii + 4000 Cds of item iii )

=$137,000 - ($17500+$16,000+$40,000)

=$63,500

Under LIFO Cost Method (If 12,000 units was sold):

Cost of goods available for sale minus (item iv, iii, & ii + 1,500 Cds of item i)

=$137,000 - ($22,000+$50,000+$31,000+12000)

=$22,000

B.ii. Cost of Goods sold is:

Under FIFO Cost Method (If 12,000 units was sold):

Cost of goods sold (Opening Inventory  + item i and ii + 4000 Cds of item iii )

=($17500+$16,000+$40,000)

=$73,500

Under LIFO Cost Method (If 12,000 units was sold):

Cost of goods Sold (item iv, iii, & ii + 1,500 Cds of item i)

=($22,000+$50,000+$31,000+12000)

=$115,000

C.i. The FIFO Cost method leaves the Higher inventory Balance in the Balance sheet ($63,500)

C.ii. The LIFO Cost method gives the Higher Cost of goods sold in the Income statement ($115,000)

Explanation: