Problem 8 Inventory Costing 16 points Grother Company uses t

Problem 8: Inventory Costing (16 points) Grother Company uses the periodic inventory method and had the following inventory information available: Units Unit Cost Total Cost 1/1 Beginning Inventory 1/20 Purchase 7/25 Purchase 10/20 Purchase 100 500 100 300 1,000 $4 $5 $7 $8 400 2,500 700 400 $6,000 A physical count of inventory on December 31 revealed that there were 325 units on hand. Instructions: Answer the following independent questions and show computations supporting your answers 1. Assume that the company uses the FIFO method. The value of the ending inventory at 2. Assume that thempnyuses the average cost method. The value of the ending inventory 3. Assume that the company uses the LIFO method. The value of the ending inventory on December 31 is $ on December 31 is $ December 31 is $ it had used the FIFO method instead of the LIFO method. Would income have been greater e the difference in the amount of income that the company would have reported if or less?

Solution

Solution:

(1) FIFO method

Ending Inventory = 300 x $8 + 25 x $7

= $2,575

(2) Average cost method

average cost = $6,000 / 1,000 = $6

Ending Inventory = 325 x $6 = $1,950

(3) LIFO method

Ending Inventory = 100 x $4 + 225 x $5

= $1,525

(4) If FIFO method is used instead of LIFO then, income would be greater by $1050.