The following information is available for Flip Company: Beginning inventory 600

Question

The following information is available for Flip Company:

Beginning inventory              600 units at $5

First purchase                          900 units at $6

Second purchase                     500 units at $7.25

Assume that Flip uses a periodic inventory system and that there are 700 units left at the end of the month. (Round all final answers to the nearest dollar.)

Instructions:

a. Compute the cost of goods available for sale.

b. Compute the value of ending inventory and Cost of Good Sold under the

(1) LIFO method.

(2) FIFO method.

        (3) Average-cost method

Explanation / Answer

PART-A

COST OF GOODS AVAILABLE FOR SALE = BEGINNING INVENTORY + FIRST PURCHASE + SECOND PURCHASE

= (600*5) + (900*6) + (500*7.25)

= 3000 + 5400 + 3625

= $12025

PART-B

(1)LIFO METHOD

(a)VALUE OF ENDING INVENTORY

SINCE IN LIFO METHOD THE UNITS WHICH HAVE ARRIVED LAST WILL BE SOLD FIRST (i.e MOST RECENTLY WILL BE SOLD FIRST). SO UNITS MUST HAVE BEEN SOLD FROM THE SECOND PURCHASES [500 UNITS] AND FROM FIRST PURCHAESE [800 UNITS] AND SO UNITS MUST HAVE BEEN LEFT FROM THE OPENING INVENTORY (i.e. 600 UNITS) AND FROM THE FIRST PURCHASES [i.e.100 UNITS (700-600)].

SO VALUE OF ENDING INVENTORY

600 UNITS OF BEGINNING INVENTORY @ 5 P.U. [600*5] = $3000

100 UNITS OF FIRST PURCHASES @ 6 P.U. [100*6] = $600

VALUE OF ENDING INVENTORY [3000+600] = $3600

(b) VALUE OF COST OF GOODS SOLD

NO OF UNITS SOLD = [600+900+500]

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