Requirement 1. Compute cost of goods sold and ending inventory, using each of th

Question

Requirement 1. Compute cost of goods sold and ending inventory, using each of the following four inventory methods Begin by entering the number of units sold and number of units in ending inventory. Then calculate cost of goods sold and ending inventory using (a) specific unit cost, then (b) average cost, then (c) FIFO, and finally (d) LIFO. (Round the average cost per unit to the nearest cent. Round all final answers to the nearest whole dollar.) Data Table Number of units 12 FIFO LIFO Specific unit cost 14 19 Average cost 19952082 1488 Cost of goods sold Jul 1 Beginning inventory.. .. 6 units 5 units 166- S 830 10 units175S1,750 1575 165 S 990 15 Purchase Requirement 2. Which method produces the highest cost of goods sold? Which method produces the lowest cost of goods sold? What causes the difference in cost of goods sold? 26 Purchase Enter any number in the edit fields and then continue to the next question. PrintDone

Explanation / Answer

Requirement 1:

Average cost = $ ( 990 + 830 + 1,750) / 21 units = $ 170 per unit.

Cost of goods sold = 12 x $ 170 = $ 2,040

Ending inventory = 9 x $ 170 = $ 1,530.

Requirement 2 :

LIFO method produces the highest cost of goods sold, and FIFO the lowest cost of goods sold. This difference is because the purchases have been made in a rising market, i.e when the product costs are on the rise.

Under the LIFO cost flow assumption, the items purchased most recently are sold out first. As the most recent prices are the highest, LIFO method gives the highest cost of goods sold, and lowest value for ending inventory.

The FIFO cost flow assumption on the other hand is that the item purchased least recently are sold first, i.e the oldest items in inventory are sold first. The older items were purchased at a lowwer price in an inflationary market. Hence the reason for the lowest cost of goods sold. And the highest value for ending inventory, as the ending inventory is assumed to comprise of items purchased most recently at the highest cost.

Number of Units a b c d Specific Identification Average Cost FIFO LIFO Cost of Goods Sold 12 ? 2,040 1,995 2,082 Ending Inventory 9 ? 1,530 1,575 1,488

Related Questions

Navigate

• Browse (All)
• Browse R
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.