Determine cost of goods sold and ending inventory using FIFO, LIFO, and average-

Question

Determine cost of goods sold and ending inventory using FIFO, LIFO, and average-cost with analysis.

(LO 2)

Glee Distribution markets CDs of the performing artist Unique. At the beginning of October, Glee had in beginning inventory 2,000 of Unique's CDs with a unit cost of $7. During October, Glee made the following purchases of Unique's CDs.

Oct. 3 2,500 @ $8

Oct. 19 3,000 @ $10

Oct. 9 3,500 @ $9

Oct. 25 4,000 @ $11

During October, 10,900 units were sold. Glee uses a periodic inventory system.

Instructions

Determine the cost of goods available for sale.

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.

FIFO

$94,500

LIFO

$108,700

Average

$101,370

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?

Oct. 3 2,500 @ $8

Oct. 19 3,000 @ $10

Oct. 9 3,500 @ $9

Oct. 25 4,000 @ $11

During October, 10,900 units were sold. Glee 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.

(2) Cost of goods sold:

FIFO

$94,500

LIFO

$108,700

Average

$101,370

(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

A) Cost of goods available for sale = 2000*7+2500*8+3000*10+4000*11

= 108000

B) Using the FIFO method:

Cost of goods sold = 2000*7 + 2500*8 + 3000*10 + (10900-2000-2500-3000)*11 = 101400

Ending inventory = Total cost - cost of goods sold

= 2000*7+2500*8+3000*10+4000*11 - 101400

= 6600

Using the LIFO method:

Cost of goods sold = 4000*11 + 3000*10 + 2500*8 + (10900-4000-2500-3000)*7 = 103800

Ending inventory = Total cost - cost of goods sold

= 2000*7+2500*8+3000*10+4000*11 - 103800

= 4200

Using the average cost method:

Cost of goods sold = 10900* average cost

Average cost = 108000/(2000+2500+3000+4000)

Cost of goods sold = 10900*9.39

= 102365

Ending inventory = Total cost - cost of goods sold

= 2000*7+2500*8+3000*10+4000*11 - 102365

= 5635

Highest inventory amount is in FIFO method

Highest cost of goods sold is in LIFO method

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