Question

PSA5.9 Determine cost of sales and ending inventory using FIFO, LIFO and average cost with analysis. し05,6 Movieworld Ltd sells old movies on DVD. At the beginning of October, Movieworld had in beginriing inventory 1100 DVDs with a unit cost of $10. During October, Movieworld made the following purchases of DVDs: 3850 @ $12 4400 @ $14 3300 @ $16 2200 @ $18 Oct. 3 Oct. 19 Oct. 9 Oct. 25 ingotober 12 100unny system. Required a. Determine the cost of goods available for sale. b. Determine (1) the ending inventory and (2) the cost of sales under each of the assumed cost flow methods (FIFO, LIFO and average cost). Prove the accuracy of the cost of sales under the FIFO and LIFO methods. c. Which cost flow method results in (1) the highest inventory amount for the statement of financial position and (2) the highest cost of sales for the statement of profit or loss?

Answer 1

PSA 5.9                  
a)   Statement showing Cost of goods available for sale:-          
Date   Particulars   Working   Amount ($)  
1-Oct   Beginning Inventory   1100 DVD's @ $10   $ 11,000.00  
3-Oct   Purchases   3850 DVD's @ $12   $ 46,200.00  
9-Oct   Purchases   4400 DVD's @ $14   $ 61,600.00  
19-Oct   Purchases   3300 DVD's @ $16   $ 52,800.00  
25-Oct   Purchases   2200 DVD's @ $18   $ 39,600.00  
Cost of goods available for sale   $ 211,200.00  
b)   Statement showing calculation of Ending Inventory and Cost of Sales:-          
i)   Under FIFO Method:-              
1   As per FIFO method, It is assumed that goods which is purchased first shall be sold first.
Calculation of Ending Inventory:-          
Date   Particulars   Unit Price($)   Unit Purchased   Amount ($)
25-Oct   Purchases   $ 18.00   2200   $ 39,600.00
19-Oct   Purchases   $ 16.00   550   $ 8,800.00
Ending Inventory ( Refer Working Note 1)   2750   $ 48,400.00
Calculation of Cost of sales:-              
Particulars   Amount ($)      
Cost of goods available for sale (as per answer (a))   $ 211,200.00      
Less:   Ending Inventory ( Calculated as above)   $ 48,400.00      
Cost of Sales   $ 162,800.00      
Proof of Cost of sales:-              
Date   Particulars   Unit Price($)   Unit Purchased   Amount ($)
1-Oct   Beginning Inventory   $ 10.00   1100   $ 11,000.00
3-Oct   Purchases   $ 12.00   3850   $ 46,200.00
9-Oct   Purchases   $ 14.00   4400   $ 61,600.00
19-Oct   Purchases   $ 16.00   2750   $ 44,000.00
Cost of Sales   12100   $ 162,800.00
Working Note 1.;-              
Date   Particulars   Units  
1-Oct   Beginning Inventory   1100  
Add:   3-Oct   Purchases   3850  
Add:   9-Oct   Purchases   4400  
Add:   19-Oct   Purchases   3300  
Add:   25-Oct   Purchases   2200  
Less:   Oct   Sales   12100  
31-Oct   Ending Inventory   2750  
ii)   Under LIFO Method:-              
1   As per LIFO method, It is assumed that goods which is purchased last shall be sold first.
Calculation of Ending Inventory:-          
Date   Particulars   Unit Price($)   Unit Purchased   Amount ($)
1-Oct   Beginning Inventory   $ 10.00   1100   $ 11,000.00
3-Oct   Purchases   $ 12.00   1650   $ 19,800.00
Ending Inventory ( Refer Working Note 1)   2750   $ 30,800.00
Calculation of Cost of sales:-              
Particulars   Amount ($)      
Cost of goods available for sale (as per answer (a))   $ 211,200.00      
Less:   Ending Inventory ( Calculated as above)   $ 30,800.00      
Cost of Sales   $ 180,400.00      
Proof of Cost of sales:-              
Date   Particulars   Unit Price($)   Unit Purchased   Amount ($)
25-Oct   Purchases   $ 18.00   2200   $ 39,600.00
19-Oct   Purchases   $ 16.00   3300   $ 52,800.00
9-Oct   Purchases   $ 14.00   4400   $ 61,600.00
3-Oct   Purchases   $ 12.00   2200   $ 26,400.00
Cost of Sales   12100   $ 180,400.00
iii)   Under Average Cost Method:-              
1   As per Average Cost Method,Cost of sales and ending inventory shall be calculated by weighted average unit price.
2   Whereas Weightege Average unit price is calculated by dividing the total cost of goods available for sales to total number of units available for sales.
Calculation of Ending Inventory:-          
Sr No.   Particulars   Amount ($)      
1   Total no. of units ending inventory   2750.00      
2   Weightege average unit price   $ 14.2222      
3   Cost of sales (1*2)   $ 39,111.00      
Calculation of Cost of sales:-              
Particulars   Amount ($)      
Cost of goods available for sale (as per answer (a))   $ 211,200.00      
Less:   Ending Inventory ( Calculated as above)   $ 39,111.00      
Cost of Sales   $ 172,089.00      
Proof of Cost of sales:-              
Sr No.   Particulars   Amount ($)      
1   Total no. of units sold   12100.00      
2   Weightege average unit price   $ 14.2222      
3   Cost of sales (1*2)   $ 172,089.00      
Working Note 2:-   Calculation of Weightege average unit price:-          
=   Total cost of goods available for sales ( refer answer part (a)      
Total no. of units available for sales ( refer answer part (a)
=   $ 211,200.00      
14850      
=   $ 14.22      
c)   1) FIFO (First In First Out) Method results in the highest inventory amount ($48,400) for the statement of financial position.
2) LIFO (Last In First Out) Method results in the highest Cost of sales ($ 180,400) for the statement of profit & Loss.