Question

Better Bottles, Inc. uses a periodic inventory system and has provided its current inventory information. The Controller has as you to prepare a comparison of the Ending Inventory and Cost of Goods Sold totals for three different inventory costing methods: Periodic FIFO, LIFO, and Weighted-Average. Use the information included in the Excel Simulation and the Excel functions described below to complete the task. • Cell Reference: Allows you to refer to data from another cell in the worksheet. From the Excel Simulation below, if in a blank cell, “=B5” was entered, the formula would output the result from cell B5, or 27 in this example. Basic Math functions: Allows you to use the basic math symbols to perform mathematical functions. You can use the following keys: + (plus sign to add), - (minus sign to subtract), * (asterisk sign to multiply), and / (forward slash to divide). From the Excel Simulation below, if in a blank cell “=B4+B5” was entered, the formula would add the values from those cells and output the result, or 47 in this example. If using the other math symbols the result would output an appropriate answer for its function. SUM function: Allows you to refer to multiple cells and adds all the values. You can add individual cell references or ranges to utilize this function. From the Excel Simulation below, if in a blank cell "=SUM(C4,C5,C6)” was entered, the formula would output the result of adding those three separate cells, or $72.00 in this example. Similarly, if in a blank cell “=SUM(C4:06)” was entered, the formula would output the same result of adding those cells, except they are expressed as a range in the formula, and the result would be $72.00 in this example.

Answer 1

44 9 Ending inventory 10 13 1) FIFO FIFO ENDING INVENTORY # of Units Cost per Unit | 33 $ 30.00 $ 11 $ 22.00 $ 44 $ Total Cost 990.00 242.00 1,232.00 16 Description 17 Jan. 20 Purchase 18 Jan. 15 Purchase 19 20 21 22 Description 23 Beginning inventory 24 Jan. 15 Purchase FIFO COST OF GOODS SOLD # of Units Cost per Unit 20 $ 20.00 16 $ 22.00 36 $ $ $ Total Cost 400.00 352.00 752.00

2) LIFO Description 31 Beginning inventory 32 Jan. 15 Purchase 33 LIFO ENDING INVENTORY # of Units Cost per Unit 20 $ 20.00 $ 24 S 22.00 $ 44 $ Total Cost 400.00 528.00 928.00 36 35 Description 37 Jan. 20 Purchase 38 Jan. 15 Purchase 39 LIFO COST OF GOODS SOLD # of Units Cost per Unit 33 $ 30.00 22.00 Total Cost 990.00 66.00 1,056.00 3 $ $ $ Ś 36

3) WEIGHTED AVERAGE COST Weighted Average Cost = Cost of Goods Available for Sale Number of Units Available for Sale $ 24.80 per unit Weighted Average Ending Inventory # of Units Cost per Unit Total Cost 44 $ 24.80 $ 1,091.20 Weighted Average Cost of Goods Sold # of Units Cost per Unit Total Cost 36 $ 24.80 $ 892.80

В 59 Beginning Inventory 60 Add: Purchases 61 Goods Available for Sale 62 Less: Ending Inventory 63 Cost of Goods Sold $ $ $ $ $ FIFO 400.00 $ 1,584.00 $ 1,984.00 $ 1,232.00 $ 752.00 $ LIFO 400.00 $ 1,584.00 $ 1,984.00 $ 928.00 $ 1,056.00 $ Wtd. Avg. 400.00 1,584.00 1,984.00 1,091.20 892.80 64

Excel formula:

Description # of Units Cost per Unit Total Cost 4 Beginning inventory 5 Jan. 15 Purchase 6 Jan. 20 Purchase 7 Goods available for sale 8 Less: January sales 9 Ending inventory 400 594 990 1984 10

13 1) FIFO 16 Description Cost per Unit FIFO ENDING INVENTORY # of Units =+B6 =+B19-B17 17 Jan. 20 Purchase 18 Jan. 15 Purchase =+C6 =+C5 Total Cost =+B17*C17 =+B18*C18 =SUM(D17:D18) 44 Description Cost per Unit 23 Beginning inventory 24 Jan. 15 Purchase 25 FIFO COST OF GOODS SOLD # of Units =+B4 =+B25-B23 36 =+C4 =+C5 Total Cost =+B23*C23 =+B24*C24 =SUM(D23:D24)

27 2) LIFO 28 29 30 31 Beginning inventory 32 Jan. 15 Purchase Description Cost per Unit LIFO ENDING INVENTORY # of Units =+B4 =+B33-B31 =+C4 =+C5 Total Cost =+B31*C31 =+B32*C32 =SUM(D31:D32) 44 Description Cost per Unit LIFO COST OF GOODS SOLD # of Units =+B6 =+B39-B37 36 37 Jan. 20 Purchase 38 Jan. 15 Purchase =+C6 Total Cost =+B37*C37 =+B38*C38 =SUM(D37:D38) =+C5 40

41 42 3) WEIGHTED AVERAGE COST Weighted Average Cost = Cost of Goods Available for Sale Number of Units Available for Sale =+D7/B7 per unit # of Units Weighted Average Ending Inventory Cost per Unit Total Cost =+E46 =+B51*C51 =+B9 # of Units Weighted Average Cost of Goods Sold Cost per Unit Total Cost =+E46 =+B55*C55 =+B8

В 59 Beginning Inventory 50 Add: Purchases 61 Goods Available for Sale 62 Less: Ending Inventory 53 Cost of Goods Sold FIFO =+D4 =+SUM(D5,06) =SUM(B59:360) =+D19 LIFO =+D4 =+SUM(D5,D6) =SUM(C59:C60) =+D33 =+C61-C62 Wtd. Avg. =+D4 =+SUM(D5,D6) =SUM(D59:060) =+D51 =+D61-D62 =+B61-162

FIFO

• FIFO stands for First In First Out.
• Under this method of inventory valuation, the oldest purchased inventory items are recorded as sold first in the books of accounts. That is, the ending inventory will always reflect the most recent purchase cost.

LIFO

• LIFO stands for Last In First Out.
• Under this method of inventory valuation, the latest purchased inventory items are recorded as sold first in the books of accounts. That is, the ending inventory will be valued at the earliest purchase cost.

WEIGHTED AVERAGE

• Under this method, the ending inventory is valued at the weighted average cost per unit.
• Weighted average cost per unit = Cost of inventory available for sale ÷ Number of units available for sale = $1,984 ÷ 80 units = $24.80 per unit
• Cost of inventory available for sale = Beginning inventory + net purchases