4. Effects of Inventory Costing Methods and Changing Prices Using the data below
ID: 2431943 • Letter: 4
Question
4.
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 26 units from the August 8 purchase and 28 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
Explanation / Answer
Answers
FIFO
Cost of Goods available for sale
Cost of Goods Sold
Ending Inventory
Units
Cost/unit
COG for sale
Units sold
Cost/unit
COGS
Units
Cost/unit
Ending inventory
Beginning Inventory
42
$ 10.00
$ 420.00
42
$ 10.00
$ 420.00
0
$ 10.00
$ -
Purchases:
08-Aug
50
$ 11.00
$ 550.00
38
$ 11.00
$ 418.00
12
$ 11.00
$ 132.00
22-Aug
30
$ 12.00
$ 360.00
0
$ 12.00
$ -
30
$ 12.00
$ 360.00
TOTAL
122
$ 1,330.00
80
$ 838.00
42
$ 492.00
LIFO
Cost of Goods available for sale
Cost of Goods Sold
Ending Inventory
Units
Cost/unit
COG for sale
Units sold
Cost/unit
COGS
Units
Cost/unit
Ending inventory
Beginning Inventory
42
$ 10.00
$ 420.00
0
$ 10.00
$ -
42
$ 10.00
$ 420.00
Purchases:
0
$ -
$ -
08-Aug
50
$ 11.00
$ 550.00
50
$ 11.00
$ 550.00
0
$ 11.00
$ -
22-Aug
30
$ 12.00
$ 360.00
30
$ 12.00
$ 360.00
0
$ 12.00
$ -
TOTAL
122
$ 1,330.00
80
$ 910.00
42
$ 420.00
Specific Identification
Cost of Goods available for sale
Cost of Goods Sold
Ending Inventory
Units
Cost/unit
COG for sale
Units sold
Cost/unit
COGS
Units
Cost/unit
Ending inventory
Beginning Inventory
42
$ 10.00
$ 420.00
42
$ 10.00
$ 420.00
0
$ 10.00
$ -
Purchases:
0
$ -
$ -
08-Aug
50
$ 11.00
$ 550.00
24
$ 11.00
$ 264.00
26
$ 11.00
$ 286.00
22-Aug
30
$ 12.00
$ 360.00
14
$ 12.00
$ 168.00
16
$ 12.00
$ 192.00
TOTAL
122
$ 1,330.00
80
$ 852.00
42
$ 478.00
Average Method
Cost of Goods available for sale
Cost of Goods Sold
Ending Inventory
Units
Cost/unit
COG for sale
Units sold
Cost/unit
COGS
Units
Cost/unit
Ending inventory
Beginning Inventory
42
$ 10.00
$ 420.00
Purchases:
0
$ -
$ -
08-Aug
50
$ 11.00
$ 550.00
22-Aug
30
$ 12.00
$ 360.00
TOTAL
122
$ 10.90
$ 1,330.00
80
$ 10.90
$ 872.00
42
$ 10.90
$ 457.80
Periodic Inventory System
Specific Identification Method
Average-Cost Method
FIFO Method
LIFO Method
Ending inventory:
$ 478
$ 458
$ 492
$ 420
Cost of goods sold:
$ 852
$ 872
$ 838
$ 910
>Higher Cost of Goods Sold = Lower Gross Profit = Lower Net Income = Lower Income taxes
FIFO
Cost of Goods available for sale
Cost of Goods Sold
Ending Inventory
Units
Cost/unit
COG for sale
Units sold
Cost/unit
COGS
Units
Cost/unit
Ending inventory
Beginning Inventory
42
$ 10.00
$ 420.00
42
$ 10.00
$ 420.00
0
$ 10.00
$ -
Purchases:
08-Aug
50
$ 11.00
$ 550.00
38
$ 11.00
$ 418.00
12
$ 11.00
$ 132.00
22-Aug
30
$ 12.00
$ 360.00
0
$ 12.00
$ -
30
$ 12.00
$ 360.00
TOTAL
122
$ 1,330.00
80
$ 838.00
42
$ 492.00
LIFO
Cost of Goods available for sale
Cost of Goods Sold
Ending Inventory
Units
Cost/unit
COG for sale
Units sold
Cost/unit
COGS
Units
Cost/unit
Ending inventory
Beginning Inventory
42
$ 10.00
$ 420.00
0
$ 10.00
$ -
42
$ 10.00
$ 420.00
Purchases:
0
$ -
$ -
08-Aug
50
$ 11.00
$ 550.00
50
$ 11.00
$ 550.00
0
$ 11.00
$ -
22-Aug
30
$ 12.00
$ 360.00
30
$ 12.00
$ 360.00
0
$ 12.00
$ -
TOTAL
122
$ 1,330.00
80
$ 910.00
42
$ 420.00
Specific Identification
Cost of Goods available for sale
Cost of Goods Sold
Ending Inventory
Units
Cost/unit
COG for sale
Units sold
Cost/unit
COGS
Units
Cost/unit
Ending inventory
Beginning Inventory
42
$ 10.00
$ 420.00
42
$ 10.00
$ 420.00
0
$ 10.00
$ -
Purchases:
0
$ -
$ -
08-Aug
50
$ 11.00
$ 550.00
24
$ 11.00
$ 264.00
26
$ 11.00
$ 286.00
22-Aug
30
$ 12.00
$ 360.00
14
$ 12.00
$ 168.00
16
$ 12.00
$ 192.00
TOTAL
122
$ 1,330.00
80
$ 852.00
42
$ 478.00
Average Method
Cost of Goods available for sale
Cost of Goods Sold
Ending Inventory
Units
Cost/unit
COG for sale
Units sold
Cost/unit
COGS
Units
Cost/unit
Ending inventory
Beginning Inventory
42
$ 10.00
$ 420.00
Purchases:
0
$ -
$ -
08-Aug
50
$ 11.00
$ 550.00
22-Aug
30
$ 12.00
$ 360.00
TOTAL
122
$ 10.90
$ 1,330.00
80
$ 10.90
$ 872.00
42
$ 10.90
$ 457.80
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