Question

FIFO Perpetual Inventory

The beginning inventory of merchandise at Dunne Co. and data on purchases and sales for a three-month period ending June 30 are as follows:

Date		Transaction	Number of Units		Per Unit		Total
Apr. 3		Inventory	36		$300		$10,800
8		Purchase	72		360		25,920
11		Sale	48		1,000		48,000
30		Sale	30		1,000		30,000
May 8		Purchase	60		400		24,000
10		Sale	36		1,000		36,000
19		Sale	18		1,000		18,000
28		Purchase	60		440		26,400
June 5		Sale	36		1,050		37,800
16		Sale	48		1,050		50,400
21		Purchase	108		480		51,840
28		Sale	54		1,050		56,700

Required:

1. Record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory record similar to the one illustrated in Exhibit 3, using the first-in, first-out method. Under FIFO, if units are in inventory at two different costs, enter the units with the LOWER unit cost first in the Cost of Merchandise Sold Unit Cost column and in the Inventory Unit Cost column.

Dunne Co. Schedule of Cost of Merchandise Sold FIFO Method For the three-months ended June 30
	Purchases			Cost of Merchandise Sold			Inventory
Date	Quantity	Unit Cost	Total Cost	Quantity	Unit Cost	Total Cost	Quantity	Unit Cost	Total Cost
Apr. 3								$	$
Apr. 8		$	$
Apr. 11					$	$
Apr. 30
May 8
May 10
May 19
May 28
June 5
June 16
June 21
June 28
June 30	Balances					$			$

2. Determine the total sales and the total cost of merchandise sold for the period. Journalize the entries in the sales and cost of merchandise sold accounts. Assume that all sales were on account.

Record sale
Record cost

3. Determine the gross profit from sales for the period.
$

4. Determine the ending inventory cost as of June 30.
$

5. Based upon the preceding data, would you expect the inventory using the last-in, first-out method to be higher or lower?

Answer 1

Ans. 1	DUNNE   CO.
	Schedule of Cost of Merchandise Sold
	FIFO Method
	For the three - months ended June 30
	Purchase				Cost of merchandise sold			Balance
	Date	Quantity	Unit cost	Total cost	Quantity	Unit cost	Total cost	Quantity	Unit cost	Total cost
	3-Apr	36	$300.00	$10,800				36	$300.00	$10,800
	8-Apr	72	$360.00	$25,920				36	$300.00	$10,800
								72	$360.00	$25,920
	11-Apr				36	$300.00	$10,800
					12	$360.00	$4,320	60	$360.00	$21,600
	30-Apr				30	$360.00	$10,800	30	$360.00	$10,800
	8-May	60	$400.00	$24,000				30	$360.00	$10,800
								60	$400.00	$24,000
	10-May				30	$360.00	$10,800
					6	$400.00	$2,400	54	$400.00	$21,600
	19-May				18	$400.00	$7,200	36	$400.00	$14,400
	28-May	60	$440.00	$26,400				36	$400.00	$14,400
								60	$440.00	$26,400
	5-Jun				36	$400.00	$14,400	60	$440.00	$26,400
	16-Jun				48	$440.00	$21,120	12	$440.00	$5,280
	21-Jun	108	$480.00	$51,840				12	$440.00	$5,280
								108	$480.00	$51,840
	28-Jun				12	$440.00	$5,280
					42	$480.00	$20,160	66	$480.00	$31,680
	Total				Cost of goods sold		$107,280	Ending inventory		$31,680
	*In FIFO method the units that have purchased first, are released the first one and the ending inventory
	units remain from the last purchases.

Ans. 2	General Journal		Debit	Credit
	Accounts receivable		$276,900
	Sales			$276,900
	(Total sales recorded)
	Cost of merchandise sold		$107,280
	Merchandise inventory			$107,280
	(Total cost of merchandise sold)
	*Calculation of sales:
	Date	Units	Rate	Cost
	11-Apr	48	$1,000.00	$48,000
	30-Apr	30	$1,000.00	$30,000
	10-May	36	$1,000.00	$36,000
	19-May	18	$1,000.00	$18,000
	5-Jun	36	$1,050.00	$37,800
	16-Jun	48	$1,050.00	$50,400
	28-Jun	54	$1,050.00	$56,700
	Total sales			$276,900
Ans. 3	Sales		$276,900
	Less: Cost of goods sold		$107,280
	Gross profit		$169,620
Ans. 4	Ending inventory		$31,680
Ans. 5	The inventory would be lower while using the last in first out method.
	This is so because inventory remains from first (starting) purchases in
	Last in first out method and the unit cost of starting purchases are lower
	so the cost of inventory will be calculated on lower unit costs.