Question

Problem Describe three inventory cost flow assumptions and how they impact the financial statements. 1. 2. Beginning inventory, purchases and sales data for T-shirts are as follows: 24 units@ 26 units 36 units 18 units 20 units Apr 3 11 Inventory Purchase $10 $12 14 Sale 21 Purchase Sale $15 25 Patual Assuming the business maintains a pastic inventory system, calculate the cost of merchandise s ending inventory under the following assumptions: a. FIFO b. LIFO c. Average cost (round cost of merchandise sold and ending inventory to the nearest dollar)

Answer 1

Ans.	Schedule of Cost of Merchandise Sold
	FIFO method
	Purchase				Cost of goods sold			Balance
	Date	Quantity	Rate	Total cost	Quantity	Rate	Total cost	Quantity	Rate	Total cost
	3-Apr							24	$10.00	$240
	11-Apr	26	12	312				24	10.00	240
								26	12.00	312
	14-Apr				24	10	240
					12	12	144	14	12.00	168
	21-Apr	18	15	270				14	12.00	168
								18	15.00	270
	25-Apr				14	12	168
					6	15	90	12	15	180
	Total				Cost of goods sold		$642	Ending inventory		$180

Ans.	Schedule of Cost of Merchandise Sold
	LIFO method
	Purchase				Cost of goods sold			Balance
	Date	Quantity	Rate	Total cost	Quantity	Rate	Total cost	Quantity	Rate	Total cost
	3-Apr							24	$10.00	$240
	11-Apr	26	12	312				24	10.00	240
								26	12.00	312
	14-Apr				26	12	312
					10	10	100	14	10.00	140
	21-Apr	18	15	270				14	10.00	140
								18	15.00	270
	25-Apr				18	15	270
					2	10	20	12	10	120
	Total				Cost of goods sold		$702	Ending inventory		$120

Ans.	Schedule of Cost of Merchandise Sold
	Average cost method
	Purchase				Cost of goods sold			Balance
	Date	Quantity	Rate	Total cost	Quantity	Rate	Total cost	Quantity	Rate	Total cost
	3-Apr							24	$10.00	$240
	11-Apr	26	12	312				24	10.00	240
								26	12.00	312
								50	11.04	552
	14-Apr				36	11.04	397	14	11.04	155
	21-Apr	18	15	270				14	11.04	155
								18	15.00	270
								32	13.28	425
	25-Apr				20	13.28	266
								12	13.28	159
	Total				Cost of goods sold		$663	Ending inventory		$159

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