Question

Assume that a retailer's beginning inventory and purchases of a popular item during January included (1) 390 units at $7.90 in beginning inventory on January 1, (2) 540 units at $8.90 purchased on January 8, and (3) 840 units at $9.90 purchased on January 29. The company sold 440 units on January 12 and 640 units on January 30. Required: 1. 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). 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). Cost of Goods Sold a. FIFO (periodic calculation) b. FIFO (perpetual calculation) c. LIFO (periodic calculation) d. LIFO (perpetual calculation) Required 1 Required 2 >

Answer 1

	Retailer
	Cost of goods sold
a	FIFO Periodic calculation	9,372
b	FIFO Perpetual calculation	9,372
c	LIFO Periodic calculation	10,452
d	LIFO Perpetual calculation	10,252
	Cost flow assumption to save taxes?	LIFO Periodic
	As cost is highest at $10,452, so net income will be lowest
	and consequently lesser taxes to pay

Calculation Retailer FIFO Periodic Date Decription 1-Jan Beginning Inventory 8-Jan Purchase 29-Jan Purchase Goods available for sale Ending Inventory Cost of goods sold Quantity 390 540 840 1,770 690 1,080 Cost per unit Total cost $ 7.90 $ 3,081 $ 8.90 $ 4,806 $ 9.90 $ 8,316 $ 16,203 $ 9.90 6,831 9,372 Latest cost of $9.90 to value inv -440+640 = 1,080 units sold =16,203-6,831 = 9,372 LIFO Periodic Date Decription 1-Jan Beginning Inventory 8-Jan Purchase 29-Jan Purchase Goods available for sale Ending Inventory Ending Inventory Ending Inventory - total Cost of goods sold Quantity 390 540 840 1,770 390 300 690 1,080 Cost per unit Total cost $ 7.90 $ 3,081 $ 8.90 $ 4,806 $ 9.90 $ 8,316 $ 16,203 $ 7.90 $ 3,081 Oldest cost of $7.90 & $8.90 to value inv $ 8.90 $ 2,670 5,751 10,452 =16, 203-5,751 = 10,452

Retailer Perpetual Inventory System FIFO Perpetual Goods Purchased Date Quantity Cost per unit Total cost 1-Jan 8-Jan 540 $ 8.90 4,806.00 Cost of goods sold Cost per unit Total cost Quantity Ending Inventory Quantity Cost per unit Total cost 390 $ 7.90 3,081.00 390 $ 7.90 3,081.00 540 $ 8.90 4,806.00 930 7,887.00 12-Jan 390 50 $ $ 7.90 8.90 3,081.00 445.00 $ 8.90 29-Jan 840 $ 9.90 8,316.00 490 490 490 840 1,330 $ $ 8.90 9.90 4,361.00 4,361.00 4,361.00 8,316.00 12,677.00 30-Jan 490 150 $ $ 8.90 9.90 4,361.00 1,485.00 $ 9.90 6,831.00 690 690 Totals 1,380 13,122.00 1,080 9,372.00 6,831.00 LIFO Perpetual Goods Purchased Date Quantity Cost per unit Total cost 1-Jan 8-Jan 540 $ 8.90 4,806.00 Cost of goods sold Cost per unit Total cost Quantity 12-Jan 440 $ 8.90 3,916.00 Ending Inventory Quantity Cost per unit Total cost 390 $ 7.90 3,081.00 390 $ 7.90 3,081.00 540 $ 8.90 4,806.00 930 7,887.00 390 $ 7.90 3,081.00 100 $ 8.90 890.00 490 3,971.00 390 $ 7.90 3,081.00 100 $ 8.90 890.00 840 $ 9.90 8,316.00 1,330 12,287.00 390 $ 7.90 3,081.00 100 $ 8.90 890.00 200 $ 9.90 1,980.00 690 5,951.00 29-Jan 840 $ 9.90 8,316.00 30-Jan 640 $ 9.90 6,336.00 Totals 1,380 13,122.00 1,080 10,252.00