Question

Exercise 8-11 Sheffield Company's record of transactions for the month of April was as follows. Purchases Sales April 1 (balance on hand) 726 @ $6.00 April 3 605 @ $10.00 1,815 @ 6.08 9 1,694 @ 10.00 968 @ 6.40 11 726 @ 11.00 1,452 @ 6.60 23 1,452 @ 11.00 847 @ 6.80 27 1,089 @ 12.00 605 @ 7.00 5,566 6,413 Assuming that periodic inventory records are kept in units only, calculate the average-cost per unit. (Round answer to 2 decimal Average-cost per unit 847 per unit Assuming that periodic inventory records are kept in units only, compute the inventory at April 30 using LIFO and average-cost. (Ro LIFO 5091.68 Average-costs 5437.74

Answer 1

Periodic Method LIFO Method: Date Purchases Less : Sales Ending Inventory Units 6413 -5566 847 Activity 01-Apr Beginning Inventory 04-Apr purchase 08-Apr purchase 13-Apr purchase 21-Apr purchase 29-Apr purchase No of units Unit cost Total Cost 726 $ 6.00 $ 4,356.00 1815 $ 6.08 $11,035.20 968 $ 6.40 $ 6,195.20 1452 $ 6.60 $ 9,583.20 847 $ 6.80 $ 5,759.60 605 $ 7.00 $ 4,235.00 Cost of goods available for sale $41,164.20 Ending Inventory 847 units : 726 unitss @ $6 121 units @ $6.08 $ 4,356.00 $ 735.68 Cost of Ending Inventory $ 5,091.68 Note : LIFO Assumes that goods which are purchased last will be sold first Therefore, Goods purchased first will be in ending inventory

Periodic Method Avg Cost Method : Date Purchases Less : Sales Ending Inventory Units 6413 -5566 847 Activity 01-Apr Beginning Inventory 04-Apr purchase 08-Apr purchase 13-Apr purchase 21-Apr purchase 29-Apr purchase No of units Unit cost Total Cost 726 $ 6.00 $ 4,356.00 1815 $ 6.08 $11,035.20 968 $ 6.40 $ 6,195.20 1452 $ 6.60 $ 9,583.20 847 $ 6.80 $ 5,759.60 605 $ 7.00 $ 4,235.00 $41,164.20 Cost of goods available for sale Average Cost per unit = 41164.20/6413 6.42

Periodic Method Avg Cost Method : Date Purchases Less : Sales Ending Inventory Units 6413 -5566 847 Activity 01-Apr Beginning Inventory 04-Apr purchase 08-Apr purchase 13-Apr purchase 21-Apr purchase 29-Apr purchase No of units Unit cost Total Cost 726 $ 6.00 $ 4,356.00 1815 $ 6.08 $11,035.20 968 $ 6.40 $ 6,195.20 1452 $ 6.60 $ 9,583.20 847 $ 6.80 $ 5,759.60 605 $ 7.00 $ 4,235.00 $41,164.20 6.42 Cost of goods available for sale Average Cost per unit = 41164.20/6413 (Rounded off to 2 Decimals) Ending Inventory 847 units : 847 units @ $6.42 $ 5,437.74 Cost of Ending Inventory $ 5,437.74 Note : Avg cost method assumes that goods are sold at avg cost per unit Therefore, Ending inventory will also be valued at avg cost per unit

Perpetual System FIFO Method Date Purchases unit cost Total cost Cost of goods sold Quantity unit cost Total cost Quantity Inventory Quantity unit cost total cost 726 $ 6.00 $ 4,356.00 Apr-01 Apr-03 605 $ 6.00 $ 3,630.00 121 $ 6.00 $ 726.00 Apr-04 1815 $ 6.08 $ 11,035.20 121 $ 6.00 1815 $ 6.08 $ 726.00 $ 11,035.20 Apr-08 968 $ 6.40 $ 6,195.20 121 $ 6.00 1815 $ 6.08 968 $ 6.40 $ 726.00 $ 11,035.20 $ 6,195.20 09-Apr 121 $ 6.00 1573 $ 6.08 $ 726.00 $ 9,563.84 242 $ 6.08 968 $ 6.40 $ 1,471.36 $ 6.195.20 11 - Apr 484 $ 6.40 $ 3,097.60 242 $ 6.08 484 $ 6.40 $ 1,471.36 $ 3,097.60 13-Apr 1452 $ 6.60 $ 9,583.20 484 $ 6.40 1452 $ 6.60 $ 3,097.60 $ 9.583.20 21 - Apr 847 $ 6.80 $ 5,759.60 484 $ 6.40 1452 $ 6.60 847 $ 6.80 $ 3,097.60 $ 9,583.20 $ 5,759.60 23 - Apr 484 $ 6.40 968 $ 6.60 $ 3,097.60 $ 6,388.80 484 $ 6.60 847 $ 6.80 $ 3,194.40 $ 5,759.60 27 - Apr 242 $ 6.80 $ 1,645.60 484 $ 6.60 605 $ 6.80 $ 3,194.40 $ 4,114.00 29-Apr 605 $ 7.00 $ 4,235.00 242 $ 6.80 605 $ 7.00 $ 1,645.60 $ 4,235.00 847 $ 5,881 Note : Rounded off to o Decimals

Perpetual System LIFO Method Date Purchases unit cost Total cost Cost of goods sold Quantity unit cost Total cost Quantity Inventory Quantity unit cost total cost 726 $ 6.00 $ 4,356.00 Apr-01 Apr-03 605 $ 6.00 $ 3,630.00 121 $ 6.00 $ 726.00 Apr-04 1815 $ 6.08 $ 11,035.20 121 $ 6.00 1815 $ 6.08 $ 726.00 $ 11,035.20 Apr-08 968 $ 6.40 $ 6,195.20 121 $ 6.00 1815 $ 6.08 968 $ 6.40 $ 726.00 $ 11,035.20 $ 6,195.20 09-Apr 968 $ 6.40 726 $ 6.08 $ 6,195.20 $ 4,414.08 121 $ 6.00 1089 $ 6.08 $ 726.00 $ 6,621.12 11 - Apr 726 $ 6.08 $ 4,414.08 121 $ 6.00 $ 726.00 363 $ 6.08 $ 2,207.04 13-Apr 1452 $ 6.60 $ 9,583.20 121 $ 6.00 363 $ 6.08 1452 $ 6.60 $ 726.00 $ 2, 207.04 $ 9,583.20 21-Apr 847 $ 6.80 $ 5,759.60 121 $ 6.00 363 $ 6.08 1452 $ 6.60 847 $ 6.80 $ 726.00 $ 2,207.04 $ 9,583.20 $ 5,759.60 23-Apr 847 $ 6.80 605 $ 6.60 $ 5,759.60 $ 3,993.00 121 $ 6.00 363 $ 6.08 847 $ 6.60 $ 726.00 $ 2, 207.04 $ 5,590.20 27-Apr 847 $ 6.60 242 $ 6.08 $ 5,590.20 $ 1,471.36 121 $ 6.00 121 $ 6.08 $ $ 726.00 735.68 29-Apr 605 $ 7.00 $ 4,235.00 121 $ 6.00 121 $ 6.08 605 $ 7.00 $ $ $ 726.00 735.68 4,235 847 $ 5,697

Periodic Method FIFO Method: Date Purchases Less : Sales Ending Inventory Units 6413 -5566 847 Activity 01-Apr Beginning Inventory 04-Apr purchase 08-Apr purchase 13-Apr purchase 21-Apr purchase 29-Apr purchase No of units Unit cost Total Cost 726 $ 6.00 $ 4,356.00 1815 $ 6.08 $11,035.20 968 $ 6.40 $ 6,195.20 1452 $ 6.60 $ 9,583.20 847 $ 6.80 $ 5,759.60 605 $ 7.00 $ 4,235.00 Cost of goods available for sale $41,164.20 Ending Inventory 847 units : 605 units @ $7 242 units @ $6.80 $ 4,235.00 $ 1,645.60 Cost of Ending Inventory $ 5,880.60 Cost of goods sold = Cost of goods avaialble for sale - Ending Inventory $ 35,284 Note : FIFO Assumes that goods which are purchased First will be sold first Therefore, Goods purchased Last will be in ending inventory Note: Rounded off to 0 Decimals

In an Inflationary period FIFO Method will show the Highest Net income Reason; since in FIFO cost of goods sold will be on first in first out basis The ending inventory consists of goods which are purchased recently i.e., on inflationary period So low cost of goods sold will results in higher net income