Effects of Inventory Costing Methods and Changing Prices Using the data below, s

Question

Effects of Inventory Costing Methods and Changing Prices

Using the data below, show the ending inventory and cost of goods sold for each of the methods shown in the table below, including the effects of the different prices at which the merchandise was purchased. For the specific-identification method, assume that the inventory consists of 30 units from the August 8 purchase and 25 units from the purchase of August 22. For all other methods, assume Vegan uses a periodic inventory system.

In your calculations round average unit cost to the nearest cent and round your final answers to the nearest dollar.

Which method(s) would result in the lowest income taxes?
SelectLIFOFIFOAverage-Cost MethodSpecific Identification MethodItem 9

Aug. 1 Inventory 40 units @ $10 per unit $ 400 8 Purchase 50 units @ $11 per unit 550 22 Purchase 35 units @ $12 per unit 420 Goods available for sale 125 units $1,370 Aug. 15 Sale 45 units 28 Sale 25 units Inventory, Aug. 31 55 units

Explanation / Answer

1 Average cost Units Amount Cost of goods available for sale 125 1370 Average cost per unit 10.96 (1370/125) Ending inventory 55 Average cost per unit 10.96 Total inventory cost 603 Cost of goods sold Number of units sold 70 Average cost per unit 10.96 Total cost of goods sold 767 2 Specific identification Ending inventory Units Per unit cost Amount August 8 purchase 30 11 330 August 22 purchase 25 12 300 Total 55 630 Cost of goods available for sale 1370 Less Ending inventory 630 Cost of goods sold 740 3 FIFO Ending inventory Units Per unit cost Amount August 8 purchase 20 11 220 August 22 purchase 35 12 420 Total 55 640 Cost of goods available for sale 1370 Less Ending inventory 640 Cost of goods sold 730 4 LIFO Ending inventory Units Per unit cost Amount August 8 purchase 15 11 165 August 1 inventory 40 10 400 Total 55 565 Cost of goods available for sale 1370 Less Ending inventory 565 Cost of goods sold 805 specific Average FIFO LIFO Ending inventory 630 603 640 565 Cost of goods sold 740 767 730 805 Lowest income taxes LIFO As it has highest cost of goods sold

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