Question

ROUP B PROBLEMS ing the Effects of Four Alternative Inventory Methods in a Periodic connect 97.1 Analyzing the Effects of Four Inventory System ACCOUNTING LO 7-3 Mojo Industries tre but applies its iny fory system. Assum accounting period, Jan tries tracks the number of units purchased and sold throughout each accounting period eits inventory costing method at the end of each period, as if it uses a periodic inven- Assume its accounting records provided the following information at the end of the o period, January 31. The inventory's selling price is $9 per unit. Transactions Unit Cost Units Total Cost $250 250 $625 Inventory, January 1 Sale, January 10 Purchase, January 12 Sale, January 17 Purchase, January 26 300 (200) 500 1.50) 20 900 320 Required: Compute the amount of goods available for sale, ending inventory, and cost of goods sold at January 31 under each of the following inventory costing methods: a. Weighted average cost. b. First-in, first-out. c. Last-in, first-out. d. Specific identification, assuming that the January 10 sale was from the beginning inven- tory and the January 17 sale was from the January 12 purchase. 2. Of the four methods, which will result in the highest gross profit? Which will result in the lowest income taxes?

Answer 1

Weighted Average Cost

B Weighted Average cost Method 3 Transaction Unit cost ($) Units Total cost ($) 4 Inventory 5 Sale 6 Purchase 7 Sale 2.5 250 625 200 300 900 150 8 Purchase 4 80 320 10 Total cost of Purchase = $ 625 +$ 900 + $ 320 = $ 1845 11 Total Purchase = 250 + 300 +80 = 630 12 Weighted avr. cost = 1845 / 630 = $ 2.93 13 14 Ending inventory 280 * $2.93 = $ 820.4 15 COGS = 350 * $2.93 = $ 1025.5 16 Sales = 350 * $2.93 = $ 1025.5 17 3. 1, 2.

FIFO method

B FIFO cost Method 3 Transaction Unit cost ($) Units Total cost ($) 4 Inventory 2.5 250 625 5 Sale 2.5 200 500 6 Purchase 300 900 Sale 2.5 50 125 3 100 300 8 Purchase 4 80 320 10 11 Ending inventory = ( 200 * $3) +( 80 * $4) = $ 920 12 COGS = $ 1845 - $ 920 = $ 925 13 Sales = $ 500 +$425 = $ 925 14 3. 2.

LIFO METHOD

D. LIFO cost Method 2 3 Transaction Unit cost ($) Units Total cost ($) 4 Inventory 2.5 250 625 5 Sale 2.5 500 200 6 Purchase 300 900 7 Sale 150 450 8 Purchase 4 80 320 10 11 Ending inventory ( 50 * $ 2.5) +( 150 * $ 3) + ( 80 *$4) = $ 125 + $450 + $ 320 = $ 895 12 COGS = $ 1845 - $ 895 = $ 950 %3D %3D 13 Sales = $ 500 + $ 450 = $ 950 %3D 14

SPECIFIC IDENTIFICATION

SPECIFIC IDENTIFICATION 3 Calculation of ending inventory Cost per unit ($) Total cost ($) 5 Date Units Jan-01 50 2.5 125 Jan-12 150 450 8. Jan-26 80 4 320 9 Total 350 895 10 11 Calculation of Cost of goods sold 12 13 Cost of goods available for sale = $ 1845 - $ 895 = $ 950 14 15 Sales = ( 200 * $ 2.5 ) + ( 150 * 3 ) = 500 + 450 = $ 950 16 17 3. 1, 2.

( 2 ) In all method Gross profit is Nill.

and Income tax of all method is also nill.