Question

Dec. 1

Beginning merchandise inventory

12

units @

$8

each

8

Sale

8

units @

$21

each

14

Purchase

16

units @

$14

each

21

Sale

15

units @

$21

each

1.	Compute the cost of goods​ sold, cost of ending merchandise​ inventory, and gross profit using the FIFO inventory costing method.
2.	Compute the cost of goods​ sold, cost of ending merchandise​ inventory, and gross profit using the LIFO inventory costing method.
3.	Which method results in a higher cost of goods​ sold?
4.	Which method results in a higher cost of ending merchandise​ inventory?
5.	Which method results in a higher gross​ profit?

Requirement 1. Compute the cost of goods​ sold, cost of ending merchandise​ inventory, and gross profit using the FIFO inventory costing method.

Begin by computing the cost of goods sold and cost of ending merchandise inventory using the FIFO inventory costing method. Enter the transactions in chronological​ order, calculating new inventory on hand balances after each transaction. Once all of the transactions have been entered into the perpetual​ record, calculate the quantity and total cost of merchandise inventory​ purchased, sold, and on hand at the end of the period.​ (Enter the oldest inventory layers​ first.)

	Purchases			Cost of Goods Sold			Inventory on Hand
		Unit	Total		Unit	Total		Unit	Total
Date	Quantity	Cost	Cost	Quantity	Cost	Cost	Quantity	Cost	Cost
Dec. 1							12	8	96
Dec. 8				8	8	64	4	8	32
Dec. 14	16	14	224				4	8	32
							16	14	224
Dec. 21				4	8	40
Totals

Compute the gross profit using the using the FIFO inventory costing method.

Gross profit is $

using the FIFO inventory costing method.

Requirement 2. Compute the cost of goods​ sold, cost of ending merchandise​ inventory, and gross profit using the LIFO inventory costing method.

Begin by computing the cost of goods sold and cost of ending merchandise inventory using the LIFO inventory costing method. Enter the transactions in chronological​ order, calculating new inventory on hand balances after each transaction. Once all of the transactions have been entered into the perpetual​ record, calculate the quantity and total cost of merchandise inventory​ purchased, sold, and on hand at the end of the period. ​(Enter the oldest inventory layers​ first.)

	Purchases			Cost of Goods Sold			Inventory on Hand
		Unit	Total		Unit	Total		Unit	Total
Date	Quantity	Cost	Cost	Quantity	Cost	Cost	Quantity	Cost	Cost
Dec. 1
Dec. 8
Dec. 14
Dec. 21
Totals

Compute the gross profit using the using the LIFO inventory costing method.

Gross profit is $

using the LIFO inventory costing method.

Requirement 3. Which method results in a higher cost of goods​ sold?

The method with the higher cost of goods sold is

▼

FIFO.

LIFO.

neither, they are equal.

Requirement 4. Which method results in a higher cost of ending merchandise​ inventory?

The method with the higher cost of ending merchandise inventory is

▼

FIFO.

LIFO.

neither, they are equal.

Requirement 5. Which method results in a higher gross​ profit?

The method with the higher gross profit is

▼

FIFO.

LIFO.

neither, they are equal.

Answer 1

Correct Answer:

Perpetual	FIFO	LIFO
Cost of Goods Sold	$                250	$                          274
Ending Inventory	$                  70	$                            46
Gross Profit	$                233	$                          209

LIFO method result in higher cost of goods sold.

FIFO method result in higher cost of ending inventory

FIFO result in higher Gross profit as the cost of goods sold is Less.

Working:

Perpetual FIFO
Date	Goods Purchased			Cost of Goods Sold			Inventory Balance
	# of Units	Cost Per Unit	Cost of Goods Available for sale	# of Units Sold	Cost per Unit	Cost of Goods Sold	# of Units	Cost per Unit	Inventory Balance
01-Dec							12	$       8.00	$               96.00
08-Dec				8	$              8.00	$              64.00	4	$       8.00	$               32.00
14-Dec	16	$                      14.00	$          224.00				4	$       8.00	$               32.00
							16	$    14.00	$            224.00
21-Dec				4	$              8.00	$              32.00
				11	$            14.00	$            154.00	5	$   14.00	$               70.00
Totals			$          224.00	23		$            250.00	5	$    14.00	$               70.00

Perpetual LIFO
Date	Goods Purchased			Cost of Goods Sold			Inventory Balance
	# of Units	Cost Per Unit	Cost of Goods Available for sale	# of Units Sold	Cost per Unit	Cost of Goods Sold	# of Units	Cost per Unit	Inventory Balance
01-Dec							12	$           8.00	$             96.00
08-Dec				8	$      8.00	$            64.00	4	$           8.00	$             32.00
14-Dec	16	$          14.00	$             224.00				4	$           8.00	$             32.00
							16	$        14.00	$          224.00
21-Dec				15	$    14.00	$          210.00	4	$           8.00	$             32.00
							1	$        14.00	$             14.00
Totals				23	$    14.00	$          274.00	5		$             46.00

Sales Revenue
	Unit Sold	Sale price per unit
08-Dec	8	$            21	$                168
21-Dec	15	$            21	$                315
Total	23		$                483

	FIFO	LIFO
Sales Revenue	$        483	$          483
Less: Cost of goods sold	$        250	$          274
Gross Profit	$        233	$          209

                    

.

End of answer.

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