Question

The accounting records of Tuel Electronics show the following data.

Answer 1

Answer:

Tuel Electronics

Cost of goods sold:

1. Using FIFO:

Cost of goods sold = $85,340 (3,880 x $8 + 5,430 x $10)

2. Using LIFO:

Cost of goods sold = $91,800 (8,660 x $10 + 650 x $8)

3. Using Average-Cost:

Cost of goods sold = $87,327.80 (9,310 x $9.38)

Explanation:

a) Summary of data:

Beginning inventory     3,880        $8           $31,040

Purchases                     8,660      $10            86,600

Available for sale        12,540       $9.38    $117,640

Sales                              9,310      $13        $121,030

b) Ending inventory = units available for sale minus units sold

= 12,540 - 9,310 = 3,230

c) FIFO (First In, First Out) inventory method is a method that assumes that goods bought first are the first to be sold in that chronological order.  Ending inventory is valued based on the latest purchases, while cost of goods sold is valued on the earlier purchases.

d) LIFO (Last In, First Out) is an inventory method that assumes that goods sold are those that were bought first.  Ending inventory is valued based on the earlier purchases while cost of goods sold is valued on the latest purchases.

e) Average-Cost method uses an average cost to value inventory.  It is computed by adding up the costs and dividing by the units of goods available for sale.  This gives an average unit cost that is used to value the ending inventory and the cost of goods sold.

f) While these methods produce different results, we must bear in mind that they are accounting estimates based on the judgement of the management of the entity.