Question

flow methods : FIFO, LIFO, Average Cost

CALCULATOR FULL SCREEN PRINTER VERSION BACK NEXT Exercise 6-7 Lisa Company had 256 units in beginning inventory at a total cost of $26,112. The company purchased 512 units at a total cost of $66,560. At the end of the year, Lisa had 205 units in ending inventory. (a) Compute the cost of the ending inventory and the cost of goods sold under FIFO, LIFO, and average-cost. (Round average-cost per unit and final answers to o decimal places, e.g. 1,250.) FIFO LIFO Average-cost The cost of the ending inventory The cost of goods sold (b) Which cost flow method would result in the highest net income? (c) Which cost flow method would result in inventories approximating current cost in the balance sheet? (d) year? Which cost flow method would result in Lisa LINK TO TEXT

Answer 1

As per below calculation we can see answer is different method as FIFO method, LIFO method and Average method because of as per FIFO method inventory to issued from first purchase whereas per LIFO method goods sales from last purchase per weighted average method material issued to production at Average cost of goods available.

a) Cost of Goods sold and Ending Inventory.

	FIFO	LIFO	Weighted average
Ending Inventory	$ 26,650	$ 20,910	$ 24,737
Cost of Goods Sold	$ 66,022	$ 71,762	$ 67,935

b) Which cost flow show highest net income ?

Ans. FIFO Method

As per FIFO cost flow method show highest net income because of this methods show lowest cost of goods sold as a compare to other methods.

c ) which cost flow method would result in inventory approximately to current cost in the balance sheet ?

Ans. FIFO Method

As per FIFO cost flow method first in first out i.e. when goods sold oldest quaint of inventory first use so whatever inventory left out from the last purchases which nearby cost. Where in LIFO method inventory left out from beginning inventory and purchase.

d) Which cost flow method would result in Lisa paying the least tax in the first year ?

Ans. LIFO Method

As per LIFO method result in the lowest taxable income so tax will be reduced because in this method highest cost of goods sold show as compare to other methods so automatically net income reduced.

Supported Calculation:

First we find out necessary details

• Number of units sold

Total units available ( 256+512)	768 units
Ending inventory	205 units
No. of units sold	563 units

• Cost per unit

Beginning Inventory ( $ 26,112 / 256 units )	$ 102
Purchase ( $ 66,560 / 512 units )	$ 130

FIFO ( Periodic method )
Transaction	Units	Cost per unit	Total
Beginning Inventory	256	$ 102	$ 26,112
Purchase	512	$ 130	$ 66,560
Goods available for Sales	768		$ 92,672
Cost of Goods Sold
From Beginning Inventory	256	$ 102	$ 26,112
From Purchase	307	$ 130	$ 39,910
Total cost of Goods Sold	563		$ 66,022
Ending Inventory :
From Purchase ( 512 – 307 )	205	$ 130	$ 26,650

LIFO ( Periodic method )
Transaction	Units	Cost per unit	Total
Beginning Inventory	256	$ 102	$ 26,112
Purchase	512	$ 130	$ 66,560
Goods available for Sales	768		$ 92,672
Cost of Goods Sold
From Purchase	512	$ 130	$ 66,560
From Beginning Inventory	51	$ 102	$ 5,202
Total cost of Goods Sold	563		$ 71,762
Ending Inventory :
From Beginning Inventory ( 256 – 51 )	205	$ 102	$ 20,910

Weighted Average Cost ( Periodic method )
Transaction	Units	Cost per unit	Total
Beginning Inventory	256	$ 102	$ 26,112
Purchase	512	$ 130	$ 66,560
Goods available for Sales	768		$ 92,672
Cost of Goods sold @ average cost	563	$ 121	$ 67,935
Ending Inventory	205	$ 121	$ 24,737

       As per weighted average method goods to sold average cost of total

       inventory available for sales as a following solution.

Weighted average Cost per unit               = Total Cost of Goods available / No. Of units for sales               = $ 92,672 768 units               = $ 120.667 per units               = $ 121 per unit ( Final answer )