Question

Amended 1(c)

Assume that beginning inventory for ABC is 2,300,000 kg for $1.20 per kg. Ending inventory is 3,800,000 kg. The fruit prices and amount purchased is provided in Table 1 below. Compute the LIFO and FIFO COGS for ABC for the period. If ABC wishes to report a larger profit, should LIFO or FIFO be used?

Table 1: Fruit Prices and Amount Bought Date Price per ko ($) Kg Bought (thousands) Addition to Inventory (in thousands of $) Jan 1.2 Feb Mar 1.4 1.3 Apr 1.7 2.5 2.3 600 400 250 300 500 400 220 340 600 220 440 355 May Jun Jul Aug Sep Oct Nov Dec Total 2.4 $720 $560 $325 $510 $1,250 $920 $528 $714 $1,620 $638 $1,408 $1,065 $10,258 2.1 2.7 2.9 3.2 4,625 (8 marks)

Answer 1

	LIFO	FIFO
COGS	$       8,228,000	$       3,795,000

To report a larger profit, ABC should use FIFO.

Since the cost of goods sold is lower under FIFO, the profit would be higher.

Working:

LIFO	Cost of Goods Available for Sale			Cost of Goods Sold			Ending Inventory
	# of units	Cost per unit	Cost of Goods Available for Sale	# of units sold	Cost per unit	Cost of Goods Sold	# of units	Cost per unit	Ending Inventory
Beginning inventory	2300000	1.20	2760000			0	2300000	1.20	2760000
Purchases:
Jan	600000	1.2	720000			0	600000	1.2	720000
Feb	400000	1.4	560000			0	400000	1.4	560000
Mar	250000	1.3	325000			0	250000	1.3	325000
Apr	300000	1.7	510000	50000	1.7	85000	250000	1.7	425000
May	500000	2.5	1250000	500000	2.5	1250000			0
Jun	400000	2.3	920000	400000	2.3	920000			0
Jul	220000	2.4	528000	220000	2.4	528000			0
Aug	340000	2.1	714000	340000	2.1	714000			0
Sep	600000	2.7	1620000	600000	2.7	1620000			0
Oct	220000	2.9	638000	220000	2.9	638000			0
Nov	440000	3.2	1408000	440000	3.2	1408000			0
Dec	355000	3	1065000	355000	3	1065000			0
Total	6925000		13018000	3125000		8228000	3800000		4790000
FIFO	Cost of Goods Available for Sale			Cost of Goods Sold			Ending Inventory
	# of units	Cost per unit	Cost of Goods Available for Sale	# of units sold	Cost per unit	Cost of Goods Sold	# of units	Cost per unit	Ending Inventory
Beginning inventory	2300000	1.20	2760000	2300000	1.20	2760000			0
Purchases:
Jan	600000	1.2	720000	600000	1.2	720000
Feb	400000	1.4	560000	225000	1.4	315000	175000	1.4	245000
Mar	250000	1.3	325000			0	250000	1.3	325000
Apr	300000	1.7	510000			0	300000	1.7	510000
May	500000	2.5	1250000			0	500000	2.5	1250000
Jun	400000	2.3	920000			0	400000	2.3	920000
Jul	220000	2.4	528000			0	220000	2.4	528000
Aug	340000	2.1	714000			0	340000	2.1	714000
Sep	600000	2.7	1620000			0	600000	2.7	1620000
Oct	220000	2.9	638000			0	220000	2.9	638000
Nov	440000	3.2	1408000			0	440000	3.2	1408000
Dec	355000	3	1065000			0	355000	3	1065000
Total	6925000		13018000	3125000		3795000	3800000		9223000