Question

25. Inventory Costing Methods (LO 5.2) The following schedule summarizes the inventory pur- chases and sales of Brooks Street Enterprises during January 2009: Per Unit Cost $40 Per Unit Selling Price # of Units 400 200 300 BI Jan. 2 purchase Jan. 5 sale Jan. 9 purchase Jan. 14 sale Jan. 18 purchase Jan. 21 sale Jan. 25 purchase Jan. 31 sale 200 350 200 150 500 450 100

Answer 1

Cost of goods sold Units | Price Total Ending Inventory Units Price Total 1. FIFO Under FIFO Method, the goods which are brought first are sold first. Total Goods Available Particulars Units Price Total Beginning Inventory 400 $ 40 $ 16,000 Jan. 2 Purchase 200 $ 44$ 8,800 Jan. 5 Sale Jan. 9 Purchase 200 $ 48 $ 9,600 Jan. 14 Sale 300 $ 40 $ 12,000 100 200 50 $ 40 $ 44 $ 48 $ 4,000 $ 8,800 $ 2,400 200 $ 50 $ 10,000 | 150 $ 48 $ 7,200 Jan. 18 Purchase Jan. 21 Sale Jan. 25 Purchase Jan. 31 Sale 500 $ 52$ 26,000 200 250 $ 50 $ 52 $ 10,000 $ 13,000 $ 52$ Ending Inventory Total 70,400 250 250 1,500 1,250 13,000 13,000 57,400

2. LIFO Under LIFO Method, the goods which are brought last are sold first. Total Goods Available Particulars Units Price Total Beginning Inventory 400 $ 40 $ 16,000 Jan. 2 Purchase ........ 200 $ 44 $ 8,800 Jan. 5 Sale Cost of goods sold Units Price Total Ending Inventory Units Price Total ............ 200 100 $ 44 $ 40 $ 8,800 $ 4,000 200 $ 48 $ 9,600 Jan. 9 Purchase Jan. 14 Sale 200 150 $ 48 $ 40 $ 9,600 $ 6,000 200 $ 50 $ 10,000 150 $ 50 $ 7,500 500 $ 52 $ 26,000 450 $ 52 $ 23,400 Jan. 18 Purchase Jan. 21 Sale Jan. 25 Purchase Jan. 31 Sale Ending Inventory Ending Inventory Ending Inventory Total 150 50 50 250 $ $ $ 40 $ 50 $ 52$ 6,000 2,500 2,600 11,100 1,500 70,400 1,250 59,300

3. Moving Average Particulars Cost of goods sold Units Price Total Ending Inventory Units Price Total Total Goods Available Units Price Total 400 $ 40 $ 16,000 200 $ 44$ 8,800 Beginning Inventory Jan. 2 Purchase 600 $41.33 $ 24,800 ...... Jan. 5 Sale 300 $ 41 $ 12,400 300 $41.33 $ 12,400 Jan. 9 Purchase 200 $ 48$ 9,600 $ 300 $ 41.33 200 $ 48.00 500 $44.00 12,400 9,600 22,000 $ Jan. 14 Sale 350 $ 44 $ 15,400 1 150 $44.00 $ 6,600 Jan. 18 Purchase 200 $ 50 $ 10,000 150 200 350 $44.00 $50.00 $ 47.43 6,600 10,000 16,600 Jan. 21 Sale 150 $ 47 $ 7,114 200 $ 47.43 $ 9,486 Jan. 25 Purchase 500 $ 52 $ 26,000 200 500 700 $ 47.43 $ $ 52.00 $ $ 50.69 $ 9,486 26,000 35,486 ......................... Jan. 31 Sale $ 51 $ 50.69 $ 450 1,250 $ 22,812 57,727 250 250 12,673 12,673 Total 1,500 70,400

Conclusion : Method Ending Cost of goods Gross Profit Inventory sold $ 13,000 $ 57,400 $ 56,600 $ 11,100 $ 59,300 $ 54,700 $ 12,673 $ 57,727 $ 56,273 FIFO LIFO Moving Average of the three methods, the FIFO Method has the highest Gross Profit. Because as it sells the goods which are purchased first whose cost is less than the later ones. So, as a result, the Gross Profit is high. The Absolute Value difference between the Gross Profit under LIFO and under Moving Average is $ 1,575. OPTION - D.