Question

Hora's Gifts reported the following current-month data for its only product. The company uses a periodic inventory system, and its ending inventory consists of 88 units-64 units from the January 6 purchase and 24 units from the January 25 purchase. Jan. 1 Beginning inventory Jan. 6 Purchase Jan. 17 Purchase Jan. 25 Purchase Totals 205 units @ $4.60 380 units @ $4.29 618 units @ $3.70 36 units@ $3.40 1,231 units - $ 943.00 - 1,596.00 - 2,257.00 122.40 $4,918.40 (a-d) Determine the cost assigned to ending inventory and to cost of goods sold for the following. (Do not round intermediate calculations and round your answers to nearest whole dollar.) Ending Inventory 88 Cost of Goods Sold s (a) Specific identification (b) Weighted average (c) FIFO (d) LIFO (e) Which method yields the lowest net income? Weighted average FIFO LIFO Specific identification 2 !! - Next

Answer 1

Weighted average cost per unit = Cost of goods available for sale / Unit available for sale = 4918.40 / 1231

4.00

	Ending inventory	Cost of goods sold [ Cost of goods available for sale - Ending inventory ]
(a) Specific identification	350 [ (64*4.2) + (24*3.4) ]	4568 [ 4918.40 - 350 ]
(b) Weighted average	352 [ (88*4.00) ]	4566 [ 4918.40 - 352 ]
.(c) FIFO	315 [ (36*3.4) + (52*3.7) ]	4603 [ 4918.40 - 315 ]
(d) LIFO	405 [ (88*4.6) ]	4513 [ 4918.40 - 405 ]

.(e) Answer : LIFO

Explanation : As the cost of goods sold is highest in LIFO method, that method will result in lowest net income.