Question

Problem 17.2A Computing inventory costs under different valuation methods and applying the lower of cost or net realizable value rule. LO 17-1, 17-3 The following data pertains to Efficient Market Investment software packages in the inventory of the Investment Software division of Efficient Market Investment Outlets: 210 units at $115 Inventory, January 1 Purchases: May 10 August 18 October 1 Inventory, December 31 150 units at $113 220 units at $112 210 units at $113 1(a). Determine the cost of the inventory on December 31 and the cost of goods sold for the year ending on that date under the FIFO method. 1(b). Determine the cost of the inventory on December 31 and the cost of goods sold for the year ending on that date under the LIFO method. 1(c). Determine the unit cost, cost of the inventory on December 31 and the cost of goods sold for the year ending on that date under the average cost method. 2. Assume that the replacement cost of each unit on December 31 is $113.25. Using the lower of cost or market rule, find the inventory amount under each of the methods given in 1. Analyze: What is the difference between the cost and market value of the inventory using the LIFO method?

Answer 1

1A		Cost of goods available for sale			Cost of goods sold - Periodic FIFO			Ending Inventory - Periodic FIFO
	FIFO	# of units    (A)	Cost per unit	Cost of goods available for sale	# of units sold               (B)	Cost per unit	Cost of goods sold	# of units in ending inventory      (A) - (B)	Cost per unit	Ending Inventory
	Beginning Inventory	210	$        115	$     24,150	210	$        115	$ 24,150	-	$        115	$           -
	Purchases:
	May-10	150	$        113	$     16,950	150	$        113	$ 16,950	-	$        113	$           -
	Aug-18	220	$        112	$     24,640	212	$        112	$ 23,744	8	$        112	$        896
	Oct-01	210	$        113	$     23,730		$        113	$           -	210	$        113	$ 23,730
		790		$     89,470	572		$ 64,844	218		$ 24,626
1B		Cost of goods available for sale			Cost of goods sold - Periodic LIFO			Ending Inventory - Periodic LIFO
	LIFO	# of units    (A)	Cost per unit	Cost of goods available for sale	# of units sold               (B)	Cost per unit	Cost of goods sold	# of units in ending inventory      (A) - (B)	Cost per unit	Ending Inventory
	Beginning Inventory	210	$        115	$     24,150	-	$        115	$           -	210	$        115	$ 24,150
	Purchases:
	May-10	150	$        113	$     16,950	142	$        113	$ 16,046	8	$        113	$        904
	Aug-18	220	$        112	$     24,640	220	$        112	$ 24,640	-	$        112	$           -
	Oct-01	210	$        113	$     23,730	210	$        113	$ 23,730	-	$        113	$           -
		790		$     89,470	572		$ 64,416	218		$ 25,054
1C		Cost of goods available for sale			Cost of goods sold - Average Cost			Ending Inventory - Average Cost
	Average Cost	# of units	Cost per unit	Cost of goods available for sale	# of units sold	Cost per unit	Cost of goods sold	# of units in ending inventory	Cost per unit	Ending Inventory
	Beginning Inventory	210	$        115	$     24,150
	Purchases:
	May-10	150	$        113	$     16,950
	Aug-18	220	$        112	$     24,640
	Oct-01	210	$        113	$     23,730
		790		$     89,470	572	$ 113.25	$ 64,779	218	$ 113.25	$ 24,689
	*Average Cost	=	Cost of goods available for sale / No. Of units
		=	$89470/790 units
		=	$                                                                                                                                                                                113.25
2	Method		Number of units	Cost	Market (i*$113.25)	Lower
	a.	FIFO	218	$     24,626	24689	$ 24,626
	b.	LIFO	218	$     25,054	24689	$ 24,689
	c.	Average Cost	218	$     24,689	24689	$ 24,689
	Difference in cost and market value using LIFO = $366
	[$25054 - $24689 = $366]