Analyze the following scenario: The Hospital for Ordinary Surgery uses pharmaceu

Question

Analyze the following scenario: The Hospital for Ordinary Surgery uses pharmaceuticals for its patients. It started the year on January 1, with an inventory of 1,000 doses of an antibiotic drug that cost $17 per dose. On January 2, it purchased another 300 does for $21 each. From January 3 through June 30 it used 800 doses. On July 1, it bought 500 more doses at $23 each. From July 2 through the end of the year it used 400 doses. What is the inventory value at the end of the year, assuming FIFO? What is the value assuming LIFO? Clearly label the calculations of the inventory amounts using Excel. Use formulas to calculate the FIFO and LIFO inventories and format the cells to insert a comma if there is more than three numbers and round to the nearest whole number. Explain the advantages and disadvantages of FIFO and LIFO inventory methods and evaluate the best inventory method is best for this scenario. Submit to your instructor your one to two page Word document (not including the title and reference pages) and your Excel worksheet.

Explanation / Answer

FIRST -IN-FIRST-OUT (FIFO) METHOD Date Transaction Purchase USE ENDING INVENTORY Quantity Price Amount Quantity Price Amount Quantity Price Amount January,1 Beginning stock 1000 $17 $17,000 January,2 300 $21 $6,300 1000 $          17 $        17,000 300 $          21 $          6,300 Jan3 through June,30 800 $          17 $        13,600 200 $          17 $3,400 300 $          21 $          6,300 July,1 500 $23 $11,500 200 $          17 $3,400 300 $          21 $          6,300 500 $23 $11,500 Jul,2 through Dec,31 200 $          17 $          3,400 100 $          21 $2,100 200 $          21 $          4,200 500 $23 $11,500 Total 800 $        17,800 1200 $        21,200 INVENTORY VALUE AT THE END OF THE YEAR Quantity Price Value 100 $                      21 $2,100 500 $23 $11,500 Total $13,600 LAST -IN-FIRST-OUT (LIFO) METHOD Date Transaction Purchase USE ENDING INVENTORY Quantity Price Amount Quantity Price Amount Quantity Price Amount January,1 Beginning stock 1000 $17 $17,000 January,2 300 $21 $6,300 1000 $          17 $        17,000 300 $          21 $          6,300 Jan3 through June,30 300 $          21 $          6,300 500 $          17 $8,500 500 $17 $          8,500 July,1 500 $23 $11,500 500 $          17 $8,500 500 $23 $11,500 Jul,2 through Dec,31 400 $          23 $          9,200 500 $          17 $8,500 100 $23 $2,300 Total 800 $        17,800 1200 $        24,000 INVENTORY VALUE AT THE END OF THE YEAR Quantity Price Value 500 $                      17 $8,500 100 $23 $2,300 Total $10,800 If the Price has rising trend, LIFO method will show higher cost and lower closing inventory LIFOmethod willreport lower income If the Price has decreasing trend, LIFO method will show lower cost and higher closing inventory LIFOmethod willreport higher income In this case ,there is increasing price trend.It is better to use LIFOmethod It will reflect conservative inventory valuation

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