19E_3 Question:聽Assume that Toys Galo... [FREE SOLUTION]

Chapter 6: 19E_3 (page 363)

Question:Assume that Toys Galore store bought and sold a line of dolls during December as follows:
Dec. 1 Beginning merchandise inventory 13 units @ $ 9 each
8 Sale 8 units @ $ 22 each
14 Purchase 16 units @ $ 14 each
21 Sale 14 units @ $ 22 each
Requirements
3. Which method results in a higher cost of goods sold?

Expert verified

The LIFO method would provide a higher cost of goods sold

Under FIFO cost of goods sold is valued at historical prices. Whereas, the cost of goods sold is valued at the current prices under the LIFO method.

So it depends upon the fluctuation of the market price to report the highest and lowest COGS under the two methods.

In case of rising prices, LIFO would provide a higher COGS. Whereas, in case of falling prices the FIFO would provide a higher COGS.

In the given case, it can be seen that the cost price has been increased during the month.

So, in case of rising prices, LIFO would provide the highest COGS.

The COGS under the FIFO method was $347 and under the LIFO method was$372.

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	2019	2018	2017
Net Sales Revenue	\( 212,000	\) 161,000	\( 170,000
Cost of Goods Sold:
Beginning Merchandise Inventory	\)22,000	\(28,000	\)41,000
Net cost of purchase	131,000	100,000	86,000
Cost of goods available for sale	153,000	128,000	127,000
Less: Ending Merchandise Inventory	34,000	22,000	28,000
Cost of goods sold	119,000	106,000	99,000
Gross Profit	93,000	55,000	71,000
Operating Expenses	63,000	28,000	39,000
Net Income	\( 30,000	\) 27,000	$ 32,000

NATURE FOODS GROCERY
Income Statements
Years Ended June 30, 2019 and 2018
	2019	2018
Net Sales Revenue	\( 134,000	\) 119,000
Cost of Goods Sold:
Beginning Merchandise Inventory	\(17,000	\)14,000
Net Cost of Purchases	78,000	67,000
Cost of Goods Available for Sale	95,000	81,000
Less: Ending Merchandise Inventory	18,000	17,000
Cost of Goods Sold	77,000	64,000
Gross Profit	57,000	55,000
Operating Expenses	26,000	21,000
Net Income	\( 31,000	\) 34,000