Question

Financial Statements Analysis Online Assignment Question #3 Dockers Inc. beginning inventory and purchases during the year ended December 31, 2019 were as follows: Total Cost $ 50,000 Date Inventory: January 1 Purchases: March 10 August 30 November 26 Sales: June 25 October 5 December 31 Units Unit Cost 1000 units @ $50.00 1200 units @ $52.50 800 units @ $55.00 2000 units @ $56.00 800 units 1500 units 1000 units 44,000 112,000 Required: a) Determine the cost of inventory on December 31, 2019 using the perpetual inventory system under each of the following inventory costing methods: i) First in, first-out ii) Last in, first-out iii) Average inventory valuation b) Assume that during the fiscal year, ended December 31, 2019 net sales were $ 290,000 determine gross profit for each of the above methods.

Answer 1

According to the Question ,

Inventory ,1000 @ 50 = 50000

Purchases,1200 @ 52.5 = 63000

800 @ 55 =44000

2000 @ 56 =112000

For FIFO,

Sales on Jun 25 = 800 , Hence 800 @ 50 were sold

Sales on Oct 5 = 1500 , Hence 200 @ 50, 1200 @52.5 and 100@ 55 were sold

Sales on Dec 31 = 1000 , Hence 700 @ 55 and 300@ 56  were sold

So cost of inventory in FIFO = 1700 * 56= 95200

Cost of Goods sold in FIFO= Beginning inventory + purchases - Ending inventory= (50000 + 63000 +44000 + 112000 - 95200= 173800

For LIFO,

Sales on Jun 25 = 800 , Hence 800 @ 52.5 were sold

Sales on Oct 5 = 1500 , Hence 800 @ 55, 400 @52.5 and 300@ 50 were sold

Sales on Dec 31 = 1000 , Hence 1000@ 56  were sold

So cost of inventory in LIFO = (1000 * 56) + (700 *50) = 91000

Cost of Goods sold in FIFO=Beginning inventory + purchases - Ending inventory= (50000 + 63000 +44000 + 112000 - 91000= 178000

For Average inventory ,

Average cost of inventory on jun 25 = (50000 +63000)/2200 = 51.36

COGS on Jun 25= 800 * 51.36 =41090.9

Cost of inventory on Jun 25 after sale = 113000 - 41090.9 =71909.1

Average cost of inventory on Oct 5 before sale = (71909.1 + 44000) / (1400 + 800)= 52.68

COGS on Oct 5 = 1500 * 52.68 = 79028.93

Cost of inventory on Oct 5 = (71909.1 + 44000- 79028.93)= 36880.17

Average cost of inventory on Dec 31 = (36880.17 +112000)/(2200-1500+2000) = 55.14

COGS on Dec 31= 1000 * 55.14 = 55140.8

Cost of inventory on Dec 31= (36880.17 +112000- 55140.8)= 93739.37

So cost of inventory in Average Valuation = 93739.37

Total COGS= 175260.63

1a) i) cost of inventory in FIFO = 95200

ii) So cost of inventory in LIFO = 91000

iii)So cost of inventory in Average Valuation = 93739.37

1b)

Gross profit under FIFO = Net sales -COGS = 290000 - 173800 =116200

Gross profit under LIFO = Net sales -COGS = 290000 - 178000 =112000

Gross profit under Average inventory = Net sales -COGS = 290000 - 175260.63=114739.37