Express Distribution markets CDs of the performing artist Fishe. At the beginnin

Question

Express Distribution markets CDs of the performing artist Fishe. At the beginning of October, Express had in beginning inventory 3,500 of Fishe's CDs with a unit cost of $7. During October, Express made the following purchases of Fishe's CDs. During October, 19,075 units were sold. Express uses a periodic inventory system. Determine the cost of goods available for sale. Calculate cost per unit. Determine (1) the ending inventory and (2) the cost of goods sold under each of the assumed cost flow methods (FIFO, LIFO, and average-cost). Which cost flow method results in (1) the highest inventory amount for the balance sheet and (2) the highest cost of goods sold for the income statement?

Explanation / Answer

OPENING INVENTORY=3,500

ADD:PURCHASE:

ON OCT 3 =4,375

ON OCT 9 =6,125

ON OCT 19 =5,250

ON OCT 25 =7,000

26,250

LESS:SALES =19,075

CLOSING INVENTORY=7,175

COST OF GOODS AVAILABLE FOR SALE ASSUMING FIFO METHOD=4,375@$8+6,125@$9+5,250@$10+3,325@$11=$1,79,200

COST PER UNIT=$1,79,200/19,075=$9.39

7,000*$11+1,75*$10

=$78,750

4,375*$8+2,800*$9

=$60,200

7,000*$11+5,250*$10+6,125*$9+700*$8

=$1,90,225

19,075*$9.65

=$1,84,074

NOTE 1:CALCULATION OF AVERAGE COST

AVERAGE COST=(4,375*$8+6,125*$9+5,250*$10+7,000*$11)/22,750=$2,19,625/22,750=$9.65

FIFO METHOD RESULTS IN HIGHEST INVENTORY AMOUNT IN BALANCESHEET.

LIFO METHOD RESULTS IN HIGHEST COST OF GOODS SOLD IN INCOME STATEMENT

FIFO LIFO AVERAGE COST COST OF CLOSING INVENTORY OF 7,175($)

7,000*$11+1,75*$10

=$78,750

4,375*$8+2,800*$9

=$60,200

7,175*$9.65(NOTE 1)=$69,239 COST OF GOODS SOLD($) $1,79,200

7,000*$11+5,250*$10+6,125*$9+700*$8

=$1,90,225

19,075*$9.65

=$1,84,074

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