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Chapter 8: Q4P. (page 432)

Hull Company鈥檚 record of transactions concerning part X for the month of April was as follows.

Purchases Sales

April 1 (balance on hand) 100 @ $5.00 April 5 300

4 400 @ 5.10 12 200

11 300 @ 5.30 27 800

18 200 @ 5.35 28 150

26 600 @ 5.60

30 200 @ 5.80

Instructions

(a) Compute the inventory at April 30 on each of the following bases. Assume that perpetual inventory records are kept inunits only. Carry unit costs to the nearest cent.

(1) First-in, first-out (FIFO).

(2) Last-in, first-out (LIFO).

(3) Average cost.

(b) If the perpetual inventory record is kept in dollars, and costs are computed at the time of each withdrawal, what amountwould be shown as ending inventory in (1), (2), and (3) above? (Carry average unit costs to four decimal places.)

Short Answer

Expert verified

Ending inventory under the periodic system:

FIFO $2000

LIFO $1175

Average cost $1890

Ending inventory under the perpetual system:

FIFO $2000

LIFO $1915

Average cost $1977.3

Step by step solution

01

Valuation of ending inventory

As the inventory records are kept in units only, the FIFO, LIFO, and Average cost would be computed based on the periodic system.

Endinginventory(Units)=Openingstock+TotalPurchases-TotalSales=100+(400+300+200+600+200)-(300+200+800+150)=100+1700-1450=350

1) Inventory valuation under FIFO

Date

Units

Units Cost

Total Cost

April 30

200

$5.80

$1160

April 26

150

$5.60

$840

350

$2000

2) Inventory valuation under LIFO

Date

Units

Units Cost

Total Cost

April 1

100

$5

$500

April 4

250

$5.10

$1275

350

$1775

3) Inventory valuation under Weighted Average method

Averagecostofinventory=ValueofOpeningstock+ValueofallpurchasesTotalavailablegoods=(100脳$5)+(400脳$5.10+300脳$5.30+200脳$5.35+600脳$5.60+200脳$5.80)(100+400+300+200+600+200)=$500+$92201800=$5.4

Costofendinginventory=Averagecostofinventory脳No.ofendinginventory=$5.4脳350=$1,890

02

Valuation of ending inventory by the perpetual method

1) Inventory valuation under FIFO

Date

Purchase

Cost of goods sold

Balance

Units

Cost

Balance

Units

Cost

Balance

Units

Cost

Balance

April 1

100

$5

$500

100

$5

$500

April 4

400

$5.10

$2040

100

$5

$500

400

$5.10

$2040

April 5

100

$5

$500

200

$5.10

$1020

200

$5.10

$1020

April 11

300

$5.30

$1590

200

$5.10

$1020

300

$5.30

$1590

April 12

200

$5.10

$1020

300

$5.30

$1590

April 18

200

$5.35

$1070

300

$5.30

$1590

200

$5.35

$1070

April 26

600

$5.60

$3360

300

$5.30

$1590

200

$5.35

$1070

600

$5.60

$3360

April 27

300

$5.30

$1590

200

$5.35

$1070

300

$5.60

$1680

300

$5.60

$1680

April 28

150

$5.60

$840

150

$5.60

$840

April 30

200

$5.80

$1160

150

$5.60

$840

200

$5.80

$1160

Total

1450

$7720

350

$2000

Ending Inventory under FIFO is $2000.

2) Inventory valuation under LIFO

Date

Purchase

Cost of goods sold

Balance

Units

Cost

Balance

Units

Cost

Balance

Units

Cost

Balance

April 1

100

$5

$500

100

$5

$500

April 4

400

$5.10

$2040

100

$5

$500

400

$5.10

$2040

April 5

300

$5.10

$1530

100

5

$500

100

$5.10

$510

April 11

300

$5.30

$1590

100

$5

$500

100

$5.10

$510

300

$5.30

$1590

April 12

200

$5.30

$1060

100

$5

$500

100

$5.10

$510

100

$5.30

$530

April 18

200

$5.35

$1070

100

$5

$500

100

$5.10

$510

100

$5.30

$530

200

$5.35

$1070

April 26

600

$5.60

$3360

100

$5

$500

100

$5.10

$510

100

$5.30

$530

200

$5.35

$1070

600

$5.60

$3360

April 27

600

$5.60

$3360

100

$5

$500

200

$5.35

$1070

100

$5.10

$510

100

$5.30

$530

April 28

100

$5.30

$530

100

$5

$500

50

$5.10

$255

50

$5.10

$255

April 30

200

$5.80

$1160

100

$5

$500

50

$5.10

$255

200

$5.80

$1160

Total

1450

$7805

350

$1915

Ending inventory under FIFO is $1915

3) Inventory valuation under weighted average method.

Date

Purchase

Cost of goods sold

Balance

Units

Cost

Balance

Units

Cost

Balance

Units

Cost

Balance

April 1

100

$5

$500

100

$5

$500

April 4

400

$5.10

$2040

100

$5

$500

400

$5.10

$2040

Total

500

$5.08

$2540

April 5

300

$5.08

$1524

200

$5.08

$1016

April 11

300

$5.30

$1590

200

$5.08

$1016

300

$5.30

$1590

Total

500

$5.212

$2606

April 12

200

$5.212

$1042.4

300

$5.212

$1563.6

April 18

200

$5.35

$1070

300

$5.212

$1563.6

200

$5.35

$1070

Total

500

$5.2672

$2633.6

April 26

600

$5.60

$3360

500

$5.2672

$2633.6

600

$5.60

$3360

Total

1100

$5.4487

$5993.6

April 27

800

$5.4487

$4358.96

300

$5.4487

$1634.61

April 28

150

$5.4487

$817.305

150

$5.4487

$817.305

April 30

200

$5.80

$1160

150

$5.4487

$817.30

200

$5.80

$1160

Total

1450

$7742.665

350

$5.6494

$1977.3

Ending inventory under the average method is $1977.3.

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Most popular questions from this chapter

Shania Twain Company was formed on December 1, 2016. The following information is available from Twain鈥檚 inventory records for Product BAP.

Units Unit Cost

January 1, 2017 (beginning inventory) 600 $ 8.00

Purchases:

January 5, 2017 1,200 9.00

January 25, 2017 1,300 10.00

February 16, 2017 800 11.00

March 26, 2017 600 12.00

A physical inventory on March 31, 2017, shows 1,600 units on hand.

Instructions

Prepare schedules to compute the ending inventory at March 31, 2017, under each of the following inventory methods.

(a) FIFO (b) LIFO. (c) Weighted-average (round unit costs to two decimal places).

What is the dollar-value method of LIFO inventory valuation? What advantage does the dollar-value method have over the specific goods approach of LIFO inventory valuation? Why will the traditional LIFO inventory costing method and the dollar-value LIFO inventory costing method produce different inventory valuations if the composition of the inventory base changes?

Question: Fong Sai-Yuk Company sells one product. Presented below is information for January for Fong Sai-Yuk Company.

Jan. 1 Inventory 100 units at \(5 each

4 Sale 80 units at \)8 each

11 Purchase 150 units at \(6 each

13 Sale 120 units at \)8.75 each

20 Purchase 160 units at \(7 each

27 Sale 100 units at \)9 each

Fong Sai-Yuk uses the FIFO cost flow assumption. All purchases and sales are on account.

Instructions

(a) Assume Fong Sai-Yuk uses a periodic system. Prepare all necessary journal entries, including the end-of-month closing entry to record cost of goods sold. A physical count indicates that the ending inventory for January is 110 units.

(b) Compute gross profit using the periodic system.

(c) Assume Fong Sai-Yuk uses a perpetual system. Prepare all necessary journal entries.

(d) Compute gross profit using the perpetual system.

Prepare a memorandum containing responses to the following items.

(a) Describe the cost flow assumptions used in average-cost, FIFO, and LIFO methods of inventory valuation.

(b) Distinguish between weighted-average-cost and moving-average-cost for inventory costing purposes.

(c) Identify the effects on both the balance sheet and the income statement of using the LIFO method instead of the FIFOmethod for inventory costing purposes over a substantial time period when purchase prices of inventoriable items arerising. State why these effects take place.

Some of the information found on a detail inventory card for Slatkin Inc. for the first month of operations is as follows.

Received

Issued, Balance,

Date No. of Units Unit Cost No. of Units No. of Units

January 2 1,200 $3.00 1,200

7 700 500

10 600 3.20 1,100

13 500 600

18 1,000 3.30 300 1,300

20 1,100 200

23 1,300 3.40 1,500

26 800 700

28 1,600 3.50 2,300

31 1,300 1,000

Instructions

(a) From these data compute the ending inventory on each of the following bases. Assume that perpetual inventory records are kept in units only. (Carry unit costs to the nearest cent and ending inventory to the nearest dollar.)

(1) First-in, first-out (FIFO).

(2) Last-in, first-out (LIFO).

(3) Average cost.

(b) If the perpetual inventory record is kept in dollars, and costs are computed at the time of each withdrawal, would the amounts shown as ending inventory in (1), (2), and (3) above be the same? Explain and compute. (Round average unit costs to four decimal places.)
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