Question

Problem 6-02A a, b1-b2, c (Video) Martinez Distribution markets CDs of the performing artist Fishe. At the beginning of October, Martinez had in beginning inventory 3,100 of Fishe’s CDs with a unit cost of $7. During October, Martinez made the following purchases of Fishe’s CDs. Oct. 3 3,875 @ $8 Oct. 19 4,650 @ $10 Oct. 9 5,425 @ $9 Oct. 25 6,200 @ $11 During October, 16,895 units were sold. Martinez uses a periodic inventory system.

Determine the cost of goods available for sale. Cost of goods available for sale $

Calculate weighted average cost per unit. (Round answer to 2 decimal places, e.g. 2.25.) Weighted average cost per unit $

Determine (1) the ending inventory and (2) the cost of goods sold under each of the assumed cost flow methods (FIFO, LIFO, and average-cost). Prove the accuracy of the cost of goods sold under the FIFO and LIFO methods. (Round answers to 0 decimal places, e.g. 1,250. Use weighted-average unit cost rounded to 2 decimal places for computations.) FIFO LIFO AVERAGE-COST The ending inventory $ $ $ The cost of goods sold $ $ $

Which cost flow method results in (1) the highest inventory amount for the balance sheet and (2) the highest cost of goods sold for the income statement? (1) FIFOLIFOAverage-cost results in the highest inventory amount, $ . (2) FIFOLIFOAverage-cost results in the highest cost of goods sold, $ .

Answer 1

Calculate following

	Unit	Unit Cost	Total Cost
Beg Inv	3100	7	21700
Purchase 1	3875	8	31000
Purchase 2	5425	9	48825
Purchase 3	4650	10	46500
Purchase 4	6200	11	68200
Total	23250		216225

a) Cost of goods available for sale = 216225

b) Weighted average cost per unit = 216225/23250 = 9.3

c) Calculate following

	FIFO	LIFO	Average cost
The ending inventory	68200+155*10 = 69750	21700+3255*8 = 47740	6355*9.3 = 59101.5 or 59102
The cost of goods sold	216225-69750 = 146475	216225-47740 = 168485	216225-59101.50 = 157123.50 or 157123

Prove accuracy :

	FIFO	LIFO	Average cost
The ending inventory	68200+155*10 = 69750	21700+3255*8 = 47740	6355*9.3 = 59101.5 or 59102
The cost of goods sold	216225-69750 = 146475	216225-47740 = 168485	216225-59101.50 = 157123.50 or 157123
Cost of goods available for sale	216225	216225	216225

Highest inventory = FIFO

Highest cost of goods sold = LIFO