Question1: Pillsbury Company\'s manufactures many products for use in the airlin
ID: 2515862 • Letter: Q
Question
Question1: Pillsbury Company's manufactures many products for use in the airline industry. Presented below is information concerning one of its products, the Orbit. Date Transaction Quantity Price/Cost $31 50 Beginning Sale Purchase Purchase Sale 1,600 1,000 3,500 2,000 4,000 3/6 6/26 34 52 10/31 Required Compute the cost of goods sold of the following bases. Assume that the company used the periodic system to report its inventory. Carry unit costs to the nearest cent. (1) First-in, first-out (FIFO) (2) Last-in, first-out (LIFO). (3) Average cost. A. B. Repeat your calculations in (1), (2), and (3) above, under the assumption that the company used the perpetual system to report its inventory. Carry average unit costs to at least two decimal places.Explanation / Answer
Solution:
We need to calculate the Cost of Goods Sold under FIFO and LIFO method, since sale value will remain same and not given in the question. SO the difference between gross profit is the difference between Cost of Goods Sold under both the method.
Solution:
Periodic Inventory System
Periodic Inventory system is a system of inventory in which inventories are updated on a periodic basis. Periodic basis may be monthly, quarterly, weekly, half yearly or yearly. In this system, inventories are not kept up to date.
Part A(1) -- FIFO Periodic Method
FIFO method says the oldest units in stock are issued or sold first.
Cost of Goods Sold - FIFO Periodic
Units
Unit Cost
Total
Sale from Beginning Inventory
1600
$31
$49,600
Sale from Purchases 6/26
3400
$33
$112,200
Sale from Purchases 8/2
0
$34
$0
Total Cost of Goods Sold (B)
5000
$161,800
Cost of Goods Sold FIFO – Periodic = $161,800
Part A(2) --- Last in First Out (LIFO) - Periodic
LIFO method says the newest units in stock are issued or sold first.
Hence, the recently purchased units are sold first.
Cost of Goods Sold - LIFO Periodic
Units
$/Unit
$$
Sale from Beginning Inventory
0
$31
$0
Sale from Purchases 6/26
3000
$33
$99,000
Sale from Purchases 8/2
2000
$34
$68,000
Total Cost of Goods Sold
5000
$167,000
Cost of Goods Sold – LIFO Periodic = $167,000
Part A(3) --- Average cost
Units
$/Unit
$$
Inventory 1/1
1600
$31
$49,600
6/26 Purchases
3500
$33
$115,500
8/2 Purchases
2000
$34
$68,000
Goods Available for Sale
7100
$233,100
Under periodic average cost method, the average cost per unit is calculated and the calculated average cost is applied to the units sold in order to find out cost of goods sold.
Average Unit Cost = Total Cost of material available for sale / total quantity of material available for sale
Cost of Goods Sold = Sold Units x Average Unit Cost
Cost of Goods Available for Sale = $233,100
Total Units available for sale = 7100 Units
Average Cost per unit = $233,100 / 7100 Units = $32.83 per unit
Cost of Goods Sold = Sold Units 5000 * Avg Cost per unit 32.83 = $164,150
Pls ask separate question for part b --
Cost of Goods Sold - FIFO Periodic
Units
Unit Cost
Total
Sale from Beginning Inventory
1600
$31
$49,600
Sale from Purchases 6/26
3400
$33
$112,200
Sale from Purchases 8/2
0
$34
$0
Total Cost of Goods Sold (B)
5000
$161,800
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