P62A Glee Distribution markets CDs of the performing artist

P6-2A Glee Distribution markets CDs of the performing artist Unique. At the beginning of October, Glee had in beginning inventory 2,000 of Unique\'s CDs with a unit cost of $7. During October, Glee made the following purchases of Unique\'s CDs. 3,000@ $10 4,000 @ $11 Oct. 3 Oct. 9 2,500 @ $8 3,500 @ $9 Oct. 19 Oct. 25 During October, 10,900 units were sold. Glee uses a periodic inventory system. Instructions (a) Determine the cost of goods available for sale. (b) 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. (c) 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?

Solution

1-

date

Units

unit price

total value = units*unit price

1-Oct

2000

7

14000

3-Oct

2500

8

20000

9-Oct

3500

9

31500

19-Oct

3000

10

30000

25-Oct

4000

11

44000

cost of goods available for sale

31-Oct

15000

139500

2-

FIFO method

cost of goods sold

1-Oct

2000

7

14000

3-Oct

2500

8

20000

9-Oct

3500

9

31500

19-Oct

2900

10

29000

cost of goods sold

10900

94500

cost of goods in inventory at month end = cost of goods available-cost of goods sold

139500-94500

45000

19-Oct

100

10

1000

25-Oct

4000

11

44000

cost of goods in inventory at year end

4100

45000

LIFO method

cost of goods sold

25-Oct

4000

11

44000

19-Oct

3000

10

30000

9-Oct

3500

9

31500

3-Oct

400

8

3200

cost of goods sold

10900

108700

cost of goods in inventory at year end

3-Oct

2100

8

16800

1-Oct

2000

7

14000

cost of goods in inventory at year end

4100

30800

weighted average method

weighted average cost of goods avaialble in month

total cost of goods available/no of units

139500/15000

9.3

cost of goods sold

10900*9.3

101370

cost of goods in inventory

4100*9.3

38130

3-

cost of highest inventory amount

45000

FIFO method

highest cost of goods sold

108700

LIFO METHOD

1-	date	Units	unit price	total value = units*unit price
	1-Oct	2000	7	14000
	3-Oct	2500	8	20000
	9-Oct	3500	9	31500
	19-Oct	3000	10	30000
	25-Oct	4000	11	44000
cost of goods available for sale	31-Oct	15000		139500
2-	FIFO method
	cost of goods sold
	1-Oct	2000	7	14000
	3-Oct	2500	8	20000
	9-Oct	3500	9	31500
	19-Oct	2900	10	29000
	cost of goods sold	10900		94500
	cost of goods in inventory at month end = cost of goods available-cost of goods sold	139500-94500	45000
	19-Oct	100	10	1000
	25-Oct	4000	11	44000
	cost of goods in inventory at year end	4100		45000
	LIFO method
	cost of goods sold
	25-Oct	4000	11	44000
	19-Oct	3000	10	30000
	9-Oct	3500	9	31500
	3-Oct	400	8	3200
	cost of goods sold	10900		108700
	cost of goods in inventory at year end
	3-Oct	2100	8	16800
	1-Oct	2000	7	14000
	cost of goods in inventory at year end	4100		30800
	weighted average method
	weighted average cost of goods avaialble in month	total cost of goods available/no of units	139500/15000	9.3
	cost of goods sold	10900*9.3	101370
	cost of goods in inventory	4100*9.3	38130
3-	cost of highest inventory amount	45000	FIFO method
	highest cost of goods sold	108700	LIFO METHOD