Managerial Accounting Problems
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Inventory Methods
SE3:
Aug. 1 Inventory 80 units @ $10 per unit $800
8 Purchase 100 units @ $11 per unit 1,100
22 Purchase 70 units @ $12 per unit 840
Good available for sale 250 units $2,740
Aug. 15 Sale 90 units
28 Sale 50
Inventory Aug. 31 110 units
SE4: Using the data in SE3, calculate the cost of the ending inventory and cost of goods sold according to the average cost method under the periodic inventory system.
SE5: Using the data in SE3, calculate the cost of the ending inventory and cost of goods sold according to the FIFO method under the periodic inventory system.
SE6: Using the data in SE3, calculate the cost of the ending inventory and cost of goods sold according to the LIFO method under the periodic inventory system.
SE7: Using the data in SE3, calculate the cost of the ending inventory and cost of goods sold according to the average-cost method under the perpetual inventory system.
SE8: Using the data in SE3, calculate the cost of the ending inventory and cost of goods sold according to the FIFO method under the perpetual inventory system.
SE9: Using the data in SE3, calculate the cost of the ending inventory and cost of goods sold according to the LIFO method under the perpetual inventory system.
SE10: Prepare a table with seven columns that shows the ending inventory and cost of goods sold for each of the results from your calculations in SE3 through SE9. Comment on the results, including the effects of the different prices at which the merchandise was purchased. Which method(s) would result in the lowest income taxes?
SE11: The following schedule is bases on a physical inventory and replacement costs for one product line of men's shirts: (see attached)
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Inventory Methods
SE3:
Aug. 1 Inventory 80 units @ $10 per unit $800
8 Purchase 100 units @ $11 per unit 1,100
22 Purchase 70 units @ $12 per unit 840
Good available for sale 250 units $2,740
Aug. 15 Sale 90 units
28 Sale 50 units
Inventory Aug. 31 110 units
SE4: Using the data in SE3, calculate the cost of the ending inventory and cost of goods sold according to the average cost method under the periodic inventory system.
Under average-cost method under the periodic inventory system, we need to find the average cost of the total inventory on hand, i.e., the beginning inventory plus total purchases during the month. Therefore, the price used to calculate the cost of ending inventory and costs of goods sold can be calculated as follows: -
Average cost = Total inventory cost/Goods available for sale
= $2,740/250 units
= $10.96/unit
Cost of goods sold = (Goods available for sale - Ending inventory) x average cost
= (250 - 110) x $10.96
= $1,534.40
Cost of ending inventory = Ending inventory x average cost
= 110 x $10.96
= $1,205.60
SE5: Using the data in SE3, calculate the cost of the ending inventory and cost of goods sold according to the FIFO method under the periodic inventory system.
Using FIFO, units purchased first are assumed to be sold out first. Therefore, the cost of goods sold will be calculated from the beginning inventory.
140 units sold
= 80 units from beginning inventory of at $10 unit cost
+ 60 units from Aug 8 purchases at $11 unit cost
Cost of goods sold = 80x$10 + 60x$11
= $800 + $660 = $1,460
110 units of inventory left
= 40 units from Aug 8 purchases at $11 unit cost
+ 70 units from Aug 22 purchases at $12 unit cost
Cost of ending inventory = 40x$11 + 70x$12
= $440 + $840 = $1,280
SE6: Using the data in SE3, calculate the cost of the ending inventory and cost of goods sold according to the LIFO method under the periodic inventory system.
Using LIFO, units purchased last are assumed to be sold first. Therefore, the cost of goods sold will be calculated from the last purchase backward.
140 units sold
= 70 units from Aug 22 purchases at $12 unit cost
+ 70 units from Aug 8 purchases at $11 unit cost
Cost of goods sold = 70x$12 + 70x$11
= $840 + $770 = $1,610
110 units of inventory left
= 80 units from beginning inventory at $10 unit cost
+ 30 units from Aug 8 purchases at $11 unit cost
Cost of ending inventory = 80x$10 + 30x$11
= $800 + $330 = $1,130
SE7: Using the data in SE3, calculate the cost of the ending inventory and cost of goods sold according to the average-cost method under the perpetual inventory ...
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