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Question 4 (30%) Bean Company reports the following for the month of September. Explanation Units Unit Cost Total Cost Inventory 12 Purchase 23 Purchase 30 Inventory 225 525 750 280 $1,125 3,150 5,250 Sept 1 7 Instructions: (a) Compute the cost of the ending in ventory and the cost of goods sold under (1) FIFO. (2) LIFO, and (3) average cost Why? inventory and cost of goods sold for FIFO and LIFO? (b) Which costing method gives the highest ending inventory? The highest cost of goods sold? (c) How do the average-cost values for ending inventory and cost of goods sold relate to ending Question 5 (25%) The Siloam Clinic purchased a new surgical laser for $84.000. The estimated salvage value is $4,000. The laser has a useful life of five years and the clinic expects to use it 10,000 hours. It was used 1,600 hours in year 1: 2,100 hours in year 2; 2,400 hours in year 3; 1,900 hours in year 4: 2,000 hours in year 5. Instructions: Compute the annual depreciation for each of the five years under each of the following methods: (a) (1) straight-line (2) units-of-activity. (b) If you were the administrator of the clinic, which method would you deem as most appropriate? Justify your answer. Which method would result in the lower reported income in the first year? Which method would result in the lower total reported income over the five-year period? (c)

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a) Computation of closing units Cost of Ending Invento Date Particulars Units Rate Value FIFO LIFO Units 225.00 525.00 750.00 1,500 1,220 280 Value Units Value 1,125 3,150 5,250 9,525 01-Sep Opening Balance Rate Rate 5.00 6.00 7.00 12-Sep Purchases 280 7.00 1,960 225 5.00 1,125 23-Sep Purchases Goods available for sales Less: Units Sold Closing Units 6.00 6.00 330 280 Cost 1,960 280 Cost 1,455 6.35000 Average Cost per unit is -Cost of goods available for sale/Available units Average Cost per unit is (9525/1500) S6.35/- Approx.Average Cost Cost of goods sold: Good available for sale Less: Cost of Ending Inventory- Cost of goods sold FIFO LIFO 9,525 (1,960)(1,455) (1,778) 8,070 9,525 9,525 7,565 7,747 Ending Invento FIFO LIFO Average Cost (280%.35) Value S 1,960 1,455 1,778 b) FIFO Method gives highest inventory value as its closing stock reflects the latest purchases price which will be generally higher than earlier purchase rates Cost of goods sold under LIFO is higher as its cost for goods sold wil reflect the last purchase price rather than the earlier prices which are captured in Ending Inventory Average cost cost of goods sold and ending inventory are lower than the other two methods as its cost captured is average of all purchases prices, which will be normally gets averaged. So under average cost methods, Ending Inventory and Cost of goods sold will be lower than the other two methodsStraight Line methods:- Annual depreciation for each of the year is- (Cost - Salvage value)/Life Annual depreciation for each of the year is - (84000-4000)/5 Annual depreciation for each of the year is $ 16,000/ The same $ 16,000 will be the depreciation expenses for each of all the five years. Units of Activity Annual Depreciation is = ((Cost-Salvage value)/Total expected activity over the life) Each vears activity) Depreciation for year 1 is = ((84000-4000)/10000)*1600 Depreciation for year 1 is S 12,800/. Depreciation for year 2 is = ((84000-4000)/1000072100 Depreciation for year 2 is S 16,800/. Depreciation for year 3 is ((84000-4000)/10000) 2400 Depreciation for year 3 is S 19,200/. Depreciation for year 4 is = ((84000-4000)/10000)*1900 Depreciation for year 4 is 15,200/ Depreciation for year 5 is = ((84000-4000)/1000072000 Depreciation for year 5 is 16,000/

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