Question

P6-29A Accounting for inventory using the perpetual inventory system FIFO, LIFO, and weighted-average, and comparing FIFO, LIFO, and weighted-average Learning Objectives 2, 3 5. FIFO GP $5,235 Steel Mill began August with 50 units of iron inventory that cost $35 each. During August, the company completed the following inventory transactions: Units Unit Cost Unit Sales Price Aug. 3 Sale 45 $85 8 Purchase 90 $54 21 Sale 85 88 30 Purchase 15 58 Requirements 1. Prepare a perpetual inventory record for the merchandise inventory using the FIFO inventory costing method. 2. Prepare a perpetual inventory record for the merchandise inventory using the LIFO inventory costing method. 364 chapter 6 3. Prepare a perpetual inventory record for the merchandise inventory using the weighted-average inventory costing method. 4. Determine the company's cost of goods sold for August using FIFO, LIFO, and weighted-average inventory costing methods. 5. Compute gross profit for August using FIFO, LIFO, and weighted-average inven- tory costing methods 6. If the business wanted to maximize gross profit, which method would it select? CHAPTER 6

Answer 1

SOLUTION : 1
PERPETUAL INVENTORY SYSYTEM - FIFO
		COST OF GOODS AVAILABLE FOR SALE			COST OF GOODS SOLD			ENDING INVENTORY
Date	Particulars	No. of Units	Cost Per unit	Total	No. of Units	Cost Per unit	Cost of Goods Sold	No. of Units	Cost Per unit	Ending invetory
Aug, 01	Beginning inventory							50	$         35.00	$1,750
Aug, 03	Sales				45	$         35.00	$1,575	5	$         35.00	$175
Aug, 08	Purchases	90	$             54.00	$4,860				5	$         35.00	$175
								90	$         54.00	$4,860
Aug, 21	Sales				5	$         35.00	$175
					80	$         54.00	$4,320	10	$         54.00	$540
Aug, 30	Purhchases	15	$             58.00	$870				10	$         54.00	$540
								15	$         58.00	$870
	Total	105		$5,730	130		$6,070	25		$1,410
SOLUTION : 2
PERPETUAL INVENTORY SYSYTEM - LIFO
		COST OF GOODS AVAILABLE FOR SALE			COST OF GOODS SOLD			ENDING INVENTORY
Date	Particulars	No. of Units	Cost Per unit	Total	No. of Units	Cost Per unit	Cost of Goods Sold	No. of Units	Cost Per unit	Ending invetory
Aug, 01	Beginning inventory							50	$         35.00	$1,750
Aug, 03	Sales				45	$         35.00	$1,575	5	$         35.00	$175
Aug, 08	Purchases	90	$             54.00	$4,860				5	$         35.00	$175
								90	$         54.00	$4,860
Aug, 21	Sales				85	$         54.00	$4,590	5	$         35.00	$175
								5	$         54.00	$270
Aug, 30	Purhchases	15	$             58.00	$870				5	$         35.00	$175
								5	$         54.00	$270
								15	$         58.00	$870
	Total	105		$5,730	130		$6,165	25		$1,315
SOLUTION : 3
WEIGHTED AVERAGE METHOD - LIFO
		COST OF GOODS AVAILABLE FOR SALE			COST OF GOODS SOLD			ENDING INVENTORY
Date	Particulars	No. of Units	Cost Per unit	Total	No. of Units	Cost Per unit	Cost of Goods Sold	No. of Units	Cost Per unit	Ending invetory
Aug, 01	Beginning inventory							50	$         35.00	$1,750
Aug, 03	Sales				45	$         35.00	$1,575	5	$         35.00	$175
Aug, 08	Purchases	90	$             54.00	$4,860				95	$         53.00	$5,035
Aug, 21	Sales				85	$         53.00	$4,505	10	$         53.00	$530
Aug, 30	Purhchases	15	$             58.00	$870				25	$         56.00	$1,400
	Total	105		$5,730	130		$6,080	25		$1,400
SOLTION 4:
	Answer:
		FIFO	LIFO	Weighted Avg. Method
	Ending inventory	$1,410	$1,315	$1,400
	Cost of Goods Sold	$6,070	$6,165	$6,080
SOLUTION : 5
	COMPUTATION OF GROSS PROFIT	FIFO	LIFO	Weighted Avg. Method
	Sales (45 X $ 48) + (85 X $ 88)	$9,640	$9,640	$9,640
	Less: Cost of Goods Sold	$6,070	$6,165	$6,080
	Gross Profit	$3,570	$3,475	$3,560
SOLUTION : 6
	Maximum Gross Profit is eaned in FIFO inventory method