Question

IL. During the year of 20X2, Poly Corporation sold 8,000 units of Polywax for $160,000. related to its beginning inventory and purchases for 20X2 are as follows: Facts Date DescriptionUni January Beginning invet Unit Cost 3,000S8 2,000 March 8 July 22 $10 5,000S12 $17 October 14 Purchases 1,000 Required (a) Determine the cost of goods available for sale for the year 20X2. ( 13.61 (b) Determine the unit cost under the weighted average method for 20Xx2. S (c) How many units of inventory are left at the end of 20X2? units (d) For the year ended December 31, 20X2, determine the following amounts under the three inventory costing methods listed below. Weighted Cost of ending inventory S Cost of Goods Sold Gross Profit (e) Which method is preferable for financial reporting purpose for 20X2 (D Of FIFO and LIFO, which method reports earnings of higher quality? (8) Of FIFO and LIFO, which method reports inventory cost closer to current replacement cost? (h) Of FIFO and LIFO, which method is the more accurate indicator of LETO the efficiency of inventory management or turnover? P.2 of 8

Answer 1

Answer a.

Number of units available for sale = 3,000 + 2,000 + 5,000 + 1,000
Number of units available for sale = 11,000

Cost of goods available for sale = 3,000 * $8.00 + 2,000 * $10.00 + 5,000 * $12.00 + 1,000 * $17.00
Cost of goods available for sale = $121,000

Answer b.

Unit cost = Cost of goods available for sale / Number of units available for sale
Unit cost = $121,000 / 11,000
Unit cost = $11.00

Answer c.

Number of units sold = 8,000

Number of units in ending inventory = Number of units available for sale - Number of units sold
Number of units in ending inventory = 11,000 - 8,000
Number of units in ending inventory = 3,000

Answer d.

Sales = $160,000

Weighted Average:

Cost of ending inventory = Number of units in ending inventory * Unit cost
Cost of ending inventory = 3,000 * $11.00
Cost of ending inventory = $33,000

Cost of goods sold = Cost of goods available for sale - Cost of ending inventory
Cost of goods sold = $121,000 - $33,000
Cost of goods sold = $88,000

Gross profit = Sales - Cost of goods sold
Gross profit = $160,000 - $88,000
Gross profit = $72,000

FIFO:

Cost of ending inventory = 1,000 * $17.00 + 2,000 * $12.00
Cost of ending inventory = $41,000

Cost of goods sold = Cost of goods available for sale - Cost of ending inventory
Cost of goods sold = $121,000 - $41,000
Cost of goods sold = $80,000

LIFO:

Cost of ending inventory = 3,000 * $8.00
Cost of ending inventory = $24,000

Cost of goods sold = Cost of goods available for sale - Cost of ending inventory
Cost of goods sold = $121,000 - $24,000
Cost of goods sold = $97,000

Answer e.

FIFO method shows inventory at its current price.

Answer f.

Cost of goods sold is lower in FIFO, so, FIFO will report higher earnings.

Answer g.

FIFO reports inventory cost closer to current replacement cost.

Answer h.

FIFO is more accurate indicator of the efficiency of inventory management.