P6-33B Accounting for inventory using the perpetual inventory system-FIFO, LIFO

Question

P6-33B Accounting for inventory using the perpetual inventory system-FIFO, LIFO and weighted average.

Fit world began january with merchandise inventory of 90 crates if vitamins that cost a total of $5850. During the month, Fit World purchased and sold merchandise on account as follows:

jan. 2 Purchase 130 crates @ $76 each

jan 5. Sale 140 crates @ $100 each

jan 16 Purchase 170 crates @ $86 each

jan 27 Sale 180 crates @ $104 each

Requirements

1. Prepare a perpetual inventory record, using the FIFO inventory costing method, and determine the companys cost of goods sold, ending merchandise inventory, and gross profit.

2. Prepare a perpetual inventory record, using the LIFO inventory costing method, and determine the companys cost of goods sold, ending merchandise inventory, and gross profit.

3. prepare a perpetual inventory record, using the weighted-average inventory costing method, and determine the company's cost of goods sold, ending merchandise inventory, and gross profit. ( Round weighted-average cost per unit to the nearestcent and all other amounts to the nearest dollar.)

4. If the business wanted to pay the least amount of income taxes possible, which method would it choose?

Explanation / Answer

FIFO Opening Purchase Cost of Merchandise Sold Ending Inventory Date Transaction Op Units Cost $/Unit Total Op Inv Cost Purchase Units Purcahase cost/unit Total Purchase cost Total Inventory units Total Inventory value Sales unit Cost/unit of sales Total cost Ending Inventory Unit unit cost Total Cost Moving average cost Sales revenue Jan 1. Op                    90 65                   5,850                   -   90         5,850               90         65.00            5,850 Jan 2. Purchase                    90                   5,850 130 76            9,880 220      15,730                   -              220         71.50          15,730 Jan 5. sale                  220                 15,730                   -   220      15,730            140 =90*65+50*76            9,650               80         76.00            6,080 14000 Jan 16. Purchase                    80                   6,080            170 86          14,620 250      20,700            250         82.80          20,700 Jan 27. sale                  250                 20,700                   -   250      20,700            180 =80*76+100*86          14,680               70         86.00            6,020          18,720 Total          24,500          24,330          32,720 1 COMS = $ 24,330.00 Ending merchandise inventory = $ 6,020.00 Gross profit= revenue -COMS = $ 8,390.00 LIFO Opening Purchase Cost of Merchandise Sold Ending Inventory Date Transaction Op Units Cost $/Unit Total Op Inv Cost Purchase Units Purcahase cost/unit Total Purchase cost Total Inventory units Total Inventory value Sales unit Cost/unit of sales Total cost Ending Inventory Unit unit cost Total Cost Moving average cost Sales revenue Jan 1. Op                    90 65                   5,850                   -   90         5,850               90         65.00            5,850 Jan 2. Purchase                    90                   5,850 130 76            9,880 220      15,730                   -              220         71.50          15,730 Jan 5. sale                  220                 15,730                   -   220      15,730            140 =130*76+10*65          10,530               80         65.00            5,200 14000 Jan 16. Purchase                    80                   5,200            170 86          14,620 250      19,820            250         79.28          19,820 Jan 27. sale                  250                 19,820                   -   250      19,820            180 =170*86+10*65          15,270               70         65.00            4,550          18,720 Total          24,500          25,800          32,720 2 COMS = $ 25,800.00 Ending merchandise inventory = $ 4,550.00 Gross profit= revenue -COMS = $ 6,920.00 Wtd Average Opening Purchase Cost of Merchandise Sold Ending Inventory Date Transaction Op Units Cost $/Unit Total Op Inv Cost Purchase Units Purcahase cost/unit Total Purchase cost Total Inventory units Total Inventory value Sales unit Cost/unit of sales Total cost Ending Inventory Unit unit cost Total Cost Moving average cost Sales revenue Jan 1. Op                    90 65                   5,850                   -   90         5,850               90           65.0            5,850           65.0 Jan 2. Purchase                    90                   5,850 130 76            9,880 220      15,730                   -              220           71.5          15,730           71.5 Jan 5. sale                  220                 15,730                   -   220      15,730            140             71.5          10,010               80           71.5            5,720           71.5 14000 Jan 16. Purchase                    80                   5,720            170 86          14,620 250      20,340            250           81.4          20,340           81.4 Jan 27. sale                  250                 20,340                   -   250      20,340            180             81.4          14,645               70           81.4            5,695           81.4          18,720 3 Total          24,500          24,655          32,720 COMS = $ 24,654.80 Ending merchandise inventory = $ 5,695.20 Gross profit= revenue -COMS = $ 8,065.20 4 If the business wants to pay least amount of income tax , then the Cost of merchandise should be higher and gross profit should be lower. Therefore the business should choose LIFO method.

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