P6-3A Ziad Company had a beginning inventory on January 1 of 150 units of Produc
ID: 2509066 • Letter: P
Question
P6-3A Ziad Company had a beginning inventory on January 1 of 150 units of Product 4-18-15 at a cost of $20 per unit. During the year, the following purchases were made. Determine cost of goods sold and ending inventory using FIFO, LIFO, and average-cost with analysis. LO 2 Mar. 15 40o units at $23 Sept. 4 350 units at $26 July 20 250 units at $24 Dec. 2 100 units at $29 1,000 units were sold. Ziad Company uses a periodic inventory system. Instructions (a) Determine the cost of goods available for sale. (b) 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). Prove the accuracy of the cost of goods sold under the FIFO and LIFO methods. (b) (2) Cost of goods sold: FIFO $23,400 LIFO $24,900 Average $24,160 (c) 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
Answer to Part a:
Cost of goods available for Sales = Cost of Beginning Inventory + Cost of Purchases
Cost of Beginning Inventory = 150 * $20 = $3,000
Cost of Purchases = (400 * $23) + (250 * $24) + (350 * $26) + (100 * $29)
Cost of Purchases = $9,200 + $6,000 + $9,100 + $2,900
Cost of Purchases = $27,200
Cost of goods available for Sales = $3,000 + $27,200
Cost of goods available for Sales = $30,200
Answer to Part b:
FIFO Method:
Units sold = 1,000 Units
Cost of Goods sold = (150 * $20) + (400 * $23) + (250 * $24) + (200 * $26)
Cost of Goods sold = $3,000 + $9,200 + $6,000 + $5,200
Cost of Goods sold = $23,400
Ending Inventory = Cost of Goods available for Sales – Cost of Goods Sold
Ending Inventory = $30,200 - $23,400
Ending Inventory = $6,800
LIFO Method:
Units sold = 1,000 Units
Cost of Goods sold = (100 * $29) + (350 * $26) + (250 * $24) + (300 * $23)
Cost of Goods sold = $2,900 + $9,100 + $6,000 + $6,900
Cost of Goods sold = $24,900
Ending Inventory = Cost of Goods available for Sales – Cost of Goods Sold
Ending Inventory = $30,200 - $24,900
Ending Inventory = $5,300
Average Cost Method:
Units sold = 1,000 Units
Unit Cost = 30,200 / 1,250
Unit Cost = $24.16
Cost of Goods Sold = $24.16 * 1,000
Cost of Goods Sold = $24,160
Ending Inventory = Cost of Goods available for Sales – Cost of Goods Sold
Ending Inventory = $30,200 - $24,160
Ending Inventory = $6,040
Answer to Part c:
The FIFO method would result in highest Inventory in Balance sheet, whereas LIFO method would result in highest cost of goods sold.
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