Question

E8-10 (L03) (FIFO and LIFO—Periodic and Perpetual) Inventory information for Part 311 of Monique Aaron Corp. dis- closes the following information for the month of June. June 1 11 20 Balance Purchased Purchased 300 units @ $10 800 units @ $12 500 units @ $13 June 10 15 27 Sold Sold Sold 200 units 500 units 300 units $24 $25 $27 Instructions (a) Assuming that the periodic inventory method is used, compute the cost of goods sold and ending inventory under (1) LIFO and (2) FIFO. (b) Assuming that the perpetual inventory method is used and costs are computed at the time of each withdrawal, what is the value of the ending inventory at LIFO? (c) Assuming that the perpetual inventory method is used and costs are computed at the time of each withdrawal, what is the gross profit if the inventory is valued at FIFO? (d) Why is it stated that LIFO usually produces a lower gross profit than FIFO?

Answer 1

(a) (1) Cost of Goods Sold under LIFO Total Unit sold during june Cost per unit of purchase last arrived Cost of Goods Sold under LIFO 1000 units $13 $ 13,000 (1000 x13) Ending Inventory Total Cost of goods available for sale Jun-01 300 x10 Jun-11 800x12 Jun-20 500x13 3000 9600 6500) Less: Cost of Goods Sold under LIFO Ending Inventory 19,100 13,000 6,100

(a) (2) Cost of goods sold under FIFO Total Unit sold during june Cost per unit of begenning inventory Cost of goods sold under FIFO 1000 units $10 $ 10,000 Ending Inventory Total Cost of goods available for sale Jun-01 300 x10 Jun-11 800x12 Jun-20 500x13 3000 9600 6500 19,100 10,000 9,100 Less: Cost of goods sold under FIFO Ending Inventory

(b) Ending Inventory at LIFO Receipt Issue Rate Unit Rate Value Unit Value Date Particulars Jun-01 Balance Jun-10 Sales Jun-11 Purchase Jun-15 Sales 200 10 $ 2.000 800 12 $9,600 500 12 $ 6,000 Balance Unit Rate Value 300 10 $ 3,000 100 100 $ 1,000 800 12 $ 9,600 100 10 $ 1.000 300 12 $ 3,600 13 $ 6,500 100 100 $ 1.000 300 12] $ 3,600 200 13 $ 2,600 Jun-20 Purchase Jun-27 sales 500 13 $6,500 500 L 300 13 $ 3,900 Ending Inventory at LIFO= 1000+3600+2600= S 7,200

(c) FIFO method Receipt Issue Rate Unit Rate Value Unit Value Date Particulars Jun-01 Balance Jun-10 Sales Jun-11 Purchase Jun-15 Sales Balance Unit Rate Value 300 10 $ 3,000 100 100 $ 1.000 800 12 $ 9,600 200 10 $ 2.000 800 12 $9,600 100 400 10 $ 12 $ 1,000 4.800 400 13 $6,500 500 Jun-20 Purchase Jun-27 sales 12 $ 4,800 13 $ 6,500 12] $ 1.200 13 $ 6,500 300 12 $ 3,600 100 500 Cost of Goods Sold $ 11,400

Gross Profit = Sales- Cost of Goods sold Sales Jun-10 200x24 Jun-15 500x25 Jun-27 300x27 $ $ $ 4,800 12,500 8,100 25,400 Gross Profit= 25,400- 11,400= $ 14,000 Under LIFO method goods are issued at latest price,normaly the price of latest received goods are higher than earlier purchased goods hence under LIFO method of issue cost of goods sold is higher than FIFO.if cost of goods sold is high gross profit become lower.