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# Periodic and perpetual inventory systems and inventory cost

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P. 2 periodic inventory system and inventory costing methods

The inventory of Product PIT and data on purchases and sales for a two-month period follow. The company closes its books at the end of each month. It uses the periodic inventory system.

Apr. 1 Beginning inventory 50 units @ \$204
10 Purchase 100 units @ \$ 220
17 Sale 90 units
30 Ending inventory 60 units
May 2 Purchase 100 units @ \$216
14 Purchase 50units @ \$ 224
22 Purchase 60 units @ \$ 234
30 Sale 200 units
31 Ending inventory 70 units

Required

1. Compute the cost of ending inventory of Product PIT on April 30 and May 31 using the average-cost method. In addition, determine cost of goods sold for April and May. Round unit costs to cents and totals to dollars.
2. Compute the cost of ending inventory on April 30 and May 31 using the FIFO method. In addition, determine cost of goods sold for April and May.
3. Compute the cost of ending inventory on April 30 and May 31 using the LIFO method. In addition, determine cost of goods sold for April and May.
4. Do the cash flows from operations for April and May differ depending on which inventory costing method is used- average-cost, FIFO, or LIFO? Explain

P.3 Perpetual inventory system and inventory costing methods

Use the data provided in p. 2, but assume that the company uses the perpetual inventory system. (Hint: in preparing the solutions required below, it is helpful to determine the balance of inventory after each transaction, as shown in the review problem in this chapter).

Required

1. Compute the cost of ending inventory and cost of goods sold for April and May using the average cost method. Round unit to cents and totals to dollars.
2. Compute the cost of ending inventory and cost of goods sold for April and May using the FIFO method.
3. Compute the cost of ending inventory and cost of goods sold for April and May using the LIFO method.
4. Assume that this company grows for many years in a long period of rising prices. How realistic do you think the balance sheet value for inventory would be and what effect would it have on the inventory turnover ratio?

#### Solution Preview

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#### Solution Summary

Your tutorial is in Excel (click in cells to see computations). You have a different sheet for perpetual and periodic but this data does not result in different amounts because the sales do not occur between purchase dates. Comments about inventory turnover and cash flow statement impact of the methods are provided.

\$2.19

## Assignment on Financial Accounting

Blue Demon Company has the following inventory, purchases and sales data for the month of June 2008.

Inventory: June 1 400 units @ \$4.00 \$1,600
Purchases:
June 10 1,000 units @ \$4.50 4,500
June 20 800 units @ \$4.75 3,800
June 30 600 units @ \$5.00 3,000
Sales:
June 15 1,000 units Sales Price \$8 each
June 25 800 units Sales Price \$8 each

The physical inventory count on June 30 shows 1,000 units on hand

Required: Show all calculations

1.Calculate the cost of goods available for sale
2.Under the periodic inventory system, determine the cost of inventory on hand at June 30 and the cost of goods sold for June under
a. first-in, first-out (FIFO) method
b. last-in, first-out (LIFO) method
c. average cost method
3.Under the perpetual inventory system, determine the cost of inventory on hand at June 30 and the cost of goods sold for June under
a. first-in, first-out (FIFO) method
b. last-in, first-out (LIFO) method
c. average cost method
4.Prepare a table showing the financial statement effects of these Inventory Costing Methods under the periodic system and the perpetual system.
a. Income Statement -
i. Sales
ii. Cost of Goods Sold
iii. Gross Margin
b. Balance Sheet
i. Merchandise Inventory

Suggested example of Table:
Income Statement: Periodic
FIFO Periodic
LIFO Periodic
Weighted Average Perpetual
FIFO Perpetual
LIFO Perpetual
Moving Average
Sales
Cost of Goods Sold
Gross Margin

Balance Sheet:
Inventory

Show your calculations. Below is a suggested format. .

Cost of Goods Available for sale:

Date # and \$ Total
Inventory:
Purchases:

Total cost of goods available for sale

Periodic System

FIFO Method:

Ending Inventory in \$:

Date Units Unit Cost Total Cost

Cost of Goods Sold in \$:

LIFO Method:

Ending Inventory in \$:

Date Units Unit Cost Total Cost

Cost of Goods Sold in \$:

Average Cost Method:

Ending Inventory in \$:

Cost of Goods Sold in \$:

Perpetual Inventory System:

FIFO Method:

Date Purchases Sales Balance

Ending Inventory:

Cost of Goods Sold:

Perpetual Inventory System Continued

LIFO Method:

Date Purchases Sales Balance

Ending Inventory:

Cost of Goods Sold:

Average Cost Method:

Date Purchases Sales Balance

Ending Inventory:

Cost of Goods Sold:

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