Question

Assume that a retailer's beginning inventory and purchases of a popular item during January included (1) 370 units at $770 in beginning inventory on January 1 (2) 520 units at $8.70 purchased on January 8, and (3) 820 units at $970 purchased on January 29 The company sold 420 units on January 12 and 620 units on January 30 Required: 1. Calculate the cost of goods sold for the month of January under a FIFO (periodic calculation) () FIFO (perpetual calculation). ( LIFO (periodic calculation), and (c) LIFO (perpetual calculation). 2. Which cost flow assumption and calculation approach would you recommend to management in order to save taxes? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Calculate the cost of goods sold for the month of January under (a) FIFO (periodic calculation), (b) FIFO (perpetual calculation), (c) LIFO (periodic calculation), and (d) LIFO (perpetual calculation). 24 995 Cost of Goods Sold a FIFO (periodic calculation) D. FIFO (perpetual calculation) LIFO (periodic calculation) d. UFO (perpetual calculation) C Required 2 >

Answer 1

FIFO method states that goods purchased first should be sold first
LIFO method states that goods purchased later are sold first
Periodic method updates records at the end of the period
Records are updated at every transaction under perpetual method
	FIFO periodic	FIFO perpetual	LIFO periodic	LIFO perpetual
Beginning Inventory	2,849	2,849	2,849	2,849
Jan 8 Purchases	4,524	4,524	4,524	4,524
Jan 29 Purchases	7,954	7,954	7,954	7,954
Total cost of goods available	15,327	15,327	15,327	15,327
Units sold	1,040	1,040	1,040	1,040
Cost of Goods sold	8,828	8,828	9,868	9,668
In order to save taxes, LIFO periodic should be used as maximum COGS will lead to lower income and hence lower taxes

B 1 FIFO method states that goo 2 LIFO method states that goo 3 Periodic method updates rec 4. Records are updated at ever 5 FIFO periodic 6 Beginning Inventory =370*7.7 7 Jan 8 Purchases =520*8.7 8 Jan 29 Purchases =820*9.7 9 Total cost of goods available =SUM(B6:38) 10 Units sold =420+620 11 Cost of Goods sold =370*7.7+520*8.7+(1040-370-520)*9.7 12 13 In order to save taxes, LIFO P FIFO perpetual =370*7.7 =520*8.7 =820*9.7 =SUM(C6:08) =420+620 =370*7.7+520*8.7+(1040-370-520)*9.7 LIFO periodic LIFO perpetual =370*7.7 =370*7.7 =520*8.7 =520*8.7 = 820*9.7 =820*9.7 =SUM(D6:08) =SUM(E6:58) =420+620 =420+620 =820*9.7+(1040-820)*8.7 =420*8.7+620*9.7