Simple Plan Enterprises uses a periodic inventory system. Its records showed the

Question

Simple Plan Enterprises uses a periodic inventory system. Its records showed the following Inventory. December 31, using FIFO 40 Units @ $15-$600 Inventory. December 31, using LIFO 40 Units @ $11 = $440 Transactions in the Following Year Purchase,J Purchase, January 20 Sale, January 11, (at $39 per unit) Sale, January 27 (at $40 per unit) Units Unit Cost Total Cost 832 1,734 52 $16 102 17 82 58 Required 1. Compute the number and cost of goods available for sale, the cost of ending inventory, and the cost of goods sold under FIFO and LIFO FIFO LIFO Number of Goods Available for Sale (Units) Cost of Goods Available for Sale Cost of Ending Inventory Cost of Goods Sold 2. Compute the inventory turnover ratio under the FIFO and LIFO inventory costing methods. (Round your answers to 2 decimal places.) FIFO LIFO Inventory Turnover Ratio

Explanation / Answer

Answer 1.

FIFO:

Beginning Inventory: 40 units @ $15
Purchase, Jan. 9 = 52 units @ $16
Purchase, Jan. 20 = 102 units @ $17

Cost of Goods available for sale = 40 * $15 + 52 * $16 + 102 * $17
Cost of Goods available for sale = $3,166

Number of units available for sale = 40 + 52 + 102
Number of units available for sale = 194

Number of units sold = 82 + 58
Number of units sold = 140

Cost of Goods Sold = 40 * $15 + 52 * $16 + 48 * $17
Cost of Goods Sold = $2,248

Cost of Ending Inventory = 54 * $17
Cost of Ending Inventory = $918

LIFO:

Beginning Inventory: 40 units @ $11
Purchase, Jan. 9 = 52 units @ $16
Purchase, Jan. 20 = 102 units @ $17

Cost of Goods available for sale = 40 * $11 + 52 * $16 + 102 * $17
Cost of Goods available for sale = $3,006

Number of units available for sale = 40 + 52 + 102
Number of units available for sale = 194

Number of units sold = 82 + 58
Number of units sold = 140

Cost of Goods Sold = 102 * $17 + 38 * $16
Cost of Goods Sold = $2,342

Cost of Ending Inventory = 40 * $11 + 14 * $16
Cost of Ending Inventory = $664

Answer 2.

FIFO:

Cost of Beginning Inventory = 40 * $15 = $600
Cost of Ending Inventory = $918

Average Inventory = ($600 + $918) / 2
Average Inventory = $759

Inventory Turnover = Cost of Goods Sold / Average Inventory
Inventory Turnover = $2,248 / $759
Inventory Turnover = 2.96 times

LIFO:

Cost of Beginning Inventory = 40 * $11 = $440
Cost of Ending Inventory = $664

Average Inventory = ($440 + $664) / 2
Average Inventory = $552

Inventory Turnover = Cost of Goods Sold / Average Inventory
Inventory Turnover = $2,342 / $552
Inventory Turnover = 4.24 times

Answer 3.

Yes, inventory method used does make a significant difference in inventory turnover ratio.

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