Question

P6-3 Mullins Distribution markets CDs of numerous performing artists. At the beginning of March, Mullins had in beginning inventory 2,500 CDs with a unit cost of $7. During March, Mullins made the following purchases of CDs. March 5 March 13 2,000 @ $8 3,500 @ $9 March 215,000 @ $10 March 26 2,000 @ $11 During March 12,000 units were sold. Mullins 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. (Note: For average-cost, round cost per unit to three decimal places.) (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?

Answer 1

a) Cost of goods available for sale

	Unit	Unit Cost	Total cost
Beginning inventory	2500	7	17500
Purchase 1	2000	8	16000
Purchase 2	3500	9	31500
Purchase 3	5000	10	50000
Purchase 4	2000	11	22000
Total	15000		137000

Cost of goods available for sale = $137000

b) Calculate following

	Ending inventory	Cost of goods sold
FIFO	2000*11+1000*10 = 32000	137000-32000 = 105000
LIFO	500*8+17500 = 21500	137000-21500 = 115500
Weighted average	137000/15000*3000 = 27400	137000-27400 = 109600

c) Highest inventory = FIFO

Highest cost of goods sold = LIFO