The president of the company, Connie Kilmer, has asked for your advice on which inventory cost flow method should be used for the 32,000-unit physical inventory that was taken on December 31, using perpetual inventory.
Discuss how you would advise Ms. Kilmer about what inventory method to select, based on the data above, comparing and contrasting the LIFO and FIFO inventory cost flow methods and their potential impacts on the company's financial statements.
Correct Answer:
Perpetual |
FIFO |
LIFO |
Ending Inventory |
$ 1,436,400.00 |
$ 1,212,000.00 |
Cost of Goods Sold |
$ 6,711,600 |
$ 6,936,000 |
Working:
FIFO |
||||||
A |
Total Units Available for sale |
200000 |
$ 8,148,000 |
|||
Units Sold |
168000 |
|||||
Ending Inventory Units |
32000 |
|||||
Valuation |
||||||
Cost of Goods Sold |
31000 |
$ 36.60 |
$ 1,134,600.00 |
|||
33000 |
$ 39.00 |
$ 1,287,000.00 |
||||
40000 |
$ 39.60 |
$ 1,584,000.00 |
||||
40000 |
$ 42.00 |
$ 1,680,000.00 |
||||
24000 |
$ 42.75 |
$ 1,026,000.00 |
||||
B |
Cost of Goods Sold |
168000 |
units |
$ 6,711,600.00 |
||
A-B |
Ending Inventory |
32000 |
units |
$ 1,436,400.00 |
LIFO |
||||||
A |
Total Units Available for sale |
200000 |
$ 8,148,000.00 |
|||
Units Sold |
168000 |
|||||
Ending Inventory Units |
32000 |
|||||
Valuation |
||||||
Cost of Goods Sold |
16000 |
$ 36.60 |
585,600.00 |
|||
16000 |
$ 39.00 |
624,000.00 |
||||
20000 |
$ 39.60 |
792,000.00 |
||||
24000 |
$ 42.00 |
1,008,000.00 |
||||
27200 |
$ 42.75 |
1,162,800.00 |
||||
800 |
$ 28,000.00 |
$ 42.00 |
33,600.00 |
|||
15200 |
$ 42.00 |
638,400.00 |
||||
12800 |
$ 28,000.00 |
$ 39.60 |
506,880.00 |
|||
12800 |
$ 43.50 |
556,800.00 |
||||
5200 |
$ 18,000.00 |
$ 39.60 |
205,920.00 |
|||
8000 |
$ 44.85 |
358,800.00 |
||||
2000 |
$ 10,000.00 |
$ 39.60 |
79,200.00 |
|||
8000 |
$ 48.00 |
384,000.00 |
||||
B |
Cost of Goods Sold |
168000 |
units |
$ 6936000 |
||
A-B |
Ending Inventory |
32000 |
units |
$ 1,212,000.00 |
End of answer.
Please give a thumbs-up, it will be highly appreciated.
Thanks.
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