Ryan Sound uses a periodic inventory system. One of the store\'s products is a w
ID: 2500933 • Letter: R
Question
Ryan Sound uses a periodic inventory system. One of the store's products is a wireless headphone. The inventory quantities, purchases, and sales of this product for the most recent year are as follows:
a. Using periodic costing procedures, compute the cost of the December 31 inventory and the cost of goods sold for the year under each of the following cost assumptions:
1. First-in, First-out
2. Last-in, First-out
3. Average cost (round to the nearest dollar, except unit cost).
b. Which of the three inventory pricing methods provides the most realistic balance sheet valuation of inventory in light of the current replacement cost of these headphones? Does this same method also produce the most realistic measure of income in light of the costs being incurred by Roman Sound to replace these units when they are sold? Explain.
Number of Units Cost Per Unit Total Cost Inventory, Jan 1 15 $100 $1500 First purchase 32 $101 $3232 Second Purchase 40 $103 $4120 Third Purchase 5 $106 $530 Fourth Purchase 16 $108 $1728 Goods available for Sale 108 $11,110 Units Sold during the year 82 Inventory, Dec 31 26Explanation / Answer
a)
1) FIFO
Cost of Good Sold = 15*100 + 32*101 + (82-15-32)*103
Cost of Good Sold = $ 8337
Inventory = Cost of Good Available for sale - cost of good sold
Inventory = 11110-8337
Inventory = $ 2773
2) LIFO
Cost of Good Sold = 16*108 + 5* 106 + 40*103 + (82-16-5-40)*101
Cost of Good Sold = $ 8499
Inventory = Cost of Good Available for sale - cost of good sold
Inventory = 11110-8499
Inventory = $ 2611
3)Weighted Average
Cost of Good Available for sale = 11110
Unit Available for sale = 108
Weighted Average Rate = Cost of Good Available for sale / Unit Available for sale
Weighted Average Rate =11110/108
Weighted Average Rate = $ 102.87
Cost of Good Sold = Unit Sold*Weighted Average Rate
Cost of Good Sold = 82*102.87
Cost of Good Sold = $ 8435
Inventory = Inventory, Dec 31* Weighted Avg rate
Inventory = 26*102.87
Inventory = $ 2675
b. Which of the three inventory pricing methods provides the most realistic balance sheet valuation of inventory in light of the current replacement cost of these headphones? Does this same method also produce the most realistic measure of income in light of the costs being incurred by Roman Sound to replace these units when they are sold? Explain.
FIFO inventory pricing methods provides the most realistic balance sheet valuation of inventory in light of the current replacement cost of these headphones . Yes this same method i.e FIFO also produce the most realistic measure of income in light of the costs being incurred by Roman Sound to replace these units when they are sold as normally we use the old stock first and stock lies in the inventory is of current inventory which should be valued at thier current replacement cost and therefore it provides the true net income.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.