Grother Company uses the periodic inventory method and had the following invento

Question

Grother Company uses the periodic inventory method and had the following inventory information available: Units Unit Cost Total Cost 1/1 Beginning Inventory 100 $4 $ 400 1/20 Purchase 500 $5 2,500 7/25 Purchase 100 $7 700 10/20 Purchase 300 $8 2,400 1,000 $6,000 A physical count of inventory on December 31 revealed that there were 350 units on hand.

Instructions Answer the following independent questions and show computations supporting your answers.

1. Assume that the company uses the FIFO method. The value of the ending inventory at December 31 is $__________. 2. Assume that the company uses the average cost method. The value of the ending inventory on December 31 is $__________. 3. Assume that the company uses the LIFO method. The value of the ending inventory on December 31 is $__________. 4. Determine the difference in the amount of income that the company would have reported if it had used the FIFO method instead of the LIFO method. Would income have been greater or less?

Explanation / Answer

IF COMPANY USES FIFO METHOD:-

COGS-650

CLOSING STOCK- 50@7 + 300@8

=350 + 2400

= $2750

IF COMPANY USES AVERAGE COS METHOD:-

COSING STOCK - 350@6

   = $2100

IF COMPANY USES LIFO METHOD:-

CLOSING STOCK- 250@5 + 100@4

=1250 + 400

=$1650

IF THE COMPANY HAD USED THE FIFO METHOD INSTEAD OF LIFO METHOD THEN IT WOULD RESULT IN INCREASE IN THE GROSS PROFIT OF $1100 (2750-1650).

INCOME WOULD BE GREATER IN CURRENT YEAR

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