Question

atch... GoStream 123mov... Live NBA Streaming. Maintenance Conn. Connect - Sign In Check my work The Shirt Shop had the following transactions for T-shirts for 2018, its first year of operations Jan. 20 Purchased Apr. 21 Purchased July 25 Purchased Sept. 19 Purchased 460 units 120 units 220 units 90 units @ @ @ $6 = $ 7 = $ 9 = $10 . $2,760 840 1,980 900 During the year, The Shirt Shop sold 720 T-shirts for $15 each. Exercise 5-20 Part a Required a. Compute the amount of ending inventory The Shirt Shop would report on the balance sheet, assuming the following cost flow assumptions: (1) FIFO. (2) LIFO, and (3) weighted average. Round intermediate calculations to 2 decimal places and final answers to the nearest whole dollar amount. ces FIFO LIFO Weighted Average Next > Ending inventory 78 of 8 12

Answer 1

a. ENDING INVENTORY

First-in, First-out Last-in, first-out Weighted Average $ 1,620 $ 1,020 $ 1,238 Ending Inventory

Ending inventory = Beginning inventory + Purchases - Sales = 0 units + (460+120+220+90) units - 720 units = 170 units

FIRST-IN, FIRST OUT METHOD Ending Inventory Units Total Jan 20 Purchase Apr 21 Purchase Jul 25 Purchase Sep 19 Purchase Cost of Goods Available Less: Ending Inventory Cost of Goods Sold Units 460 $ 120 $ 220 $ 90 $ 890 6.00 7.00 9.00 10.00 $ $ $ $ $ Cost of Goods Sold Units Total 460 $ 2,760.00 120 $ 840.00 140 $ 1,260.00 Total 2,760.00 840.00 1,980.00 900.00 6,480.00 80 90 $ $ 720.00 900.00 170 170 $ 1,620.00 720 720 $ 4,860.00

LAST-IN, FIRST OUT METHOD Ending Inventory Units Total 170 $ 1,020.00 Jan 20 Purchase Apr 21 Purchase Jul 25 Purchase Sep 19 Purchase Cost of Goods Available Less: Ending Inventory Cost of Goods Sold Units 460 $ 120 $ 220 $ 90 $ 890 Cost 6.00 $ 7.00 $ 9.00 $ 10.00 $ $ Total 2,760.00 840.00 1,980.00 900.00 6,480.00 Cost of Goods Sold Units Total 290 $ 1,740.00 120 $ 840.00 220 $ 1,980.00 90 $ 900.00 170 170 $ 1,020.00 720 720 $ 5,460.00

WEIGHTED AVERAGE METHOD Ending Inventory Units Total Cost of Goods Sold Units Total Jan 20 Purchase Apr 21 Purchase Jul 25 Purchase Sep 19 Purchase Cost of Goods Available Less: Ending Inventory Cost of Goods Sold Units 460 $ 120$ 220 $ 90 $ 890 Cost 6.00 $ 7.00 $ 9.00 $ 10.00 $ $ Total 2,760.00 840.00 1,980.00 900.00 6,480.00 170 Avg Cost/Unit $ 7.28 $ 1,238.00 ($7.28 x 170 units) 720 Avg Cost/Unit $ 7.28 $ 5,242.00 ($7.28 x 720 units)

Cost of Goods Available (A) Number of units available for sale (B) Weighted Avg Cost per Unit (A) = (B) $ 6,480.00 890 $ 7.28

b. DIFFERENCE IN GROSS MARGIN UNDER FIFO AND LIFO ASSUMPTIONS

• Gross margin = Sales - Cost of goods sold
• 
  Difference Sales revenue Less: Cost of Goods Sold Gross Margin FIFO $ 10,800.00 $ 4,860.00 $ 5,940.00 LIFO $ 10,800.00 $ 5,460.00 $ 5,340.00 $ 600.00
  

Sales revenue = 720 t-shirts × $15 = $10,800

FIFO: Under this method of inventory valuation, the oldest purchased inventory items are recorded as sold first in the books of accounts. That is, the ending inventory will always reflect the most recent purchase cost.

LIFO: Under this method of inventory valuation, the latest purchased inventory items are recorded as sold first in the books of accounts. That is, the ending inventory will be valued at the earliest purchase cost.

Weighted Average Cost: Under this method, the ending inventory is valued at the weighted average cost per unit.

• Weighted average cost per unit = Cost of inventory available for sale ÷ Number of units available for sale
• Cost of inventory available for sale = Beginning inventory + net purchases