Homework SourseChapter 5 HW E521A FIFO versus LIFO versus averagecost Assum
Chapter 5 HW E5-21A FIFO versus LIFO versus average-cost Assume that a Firestone Tire Store completed the following perpetual inventory transactions for a line of tires. Beginning Inventory…………………………………………………………………………… 34 tires @ $82 Purchase……………………………………………………………………………………………. 25 tires @ $88 Sale…………………………………………………………………………………………………….. 40 tires @ $134 Requirements 1. Compute cost of goods sold and gross profit under FIFO. 2. Computer cost of goods sold and gross profit using LIFO. 3. Computer cost of goods sold and gross profit using average cost. Round average cost per unit to the nearest cent and all other amounts to the nearest dollar. 4. Which method results in the largest gross profit and why?
Solution
Answers
FIFO
Cost of Goods available for sale
Cost of Goods Sold
Ending Inventory
Units
Cost/unit
COG for sale
Units sold
Cost/unit
COGS
Units
Cost/unit
Ending inventory
Beginning Inventory
34
$ 82.00
$ 2,788.00
34
$ 82.00
$ 2,788.00
0
$ 82.00
$ -
Purchases:
25
$ 88.00
$ 2,200.00
6
$ 88.00
$ 528.00
19
$ 88.00
$ 1,672.00
TOTAL
59
$ 4,988.00
40
$ 3,316.00
19
$ 1,672.00
LIFO
Cost of Goods available for sale
Cost of Goods Sold
Ending Inventory
Units
Cost/unit
COG for sale
Units sold
Cost/unit
COGS
Units
Cost/unit
Ending inventory
Beginning Inventory
34
$ 82.00
$ 2,788.00
15
$ 82.00
$ 1,230.00
19
$ 82.00
$ 1,558.00
Purchases:
20-Jan
25
$ 88.00
$ 2,200.00
25
$ 88.00
$ 2,200.00
0
$ 88.00
$ -
TOTAL
59
$ 4,988.00
40
$ 3,430.00
19
$ 1,558.00
Average Method
Cost of Goods available for sale
Cost of Goods Sold
Ending Inventory
Units
Cost/unit
COG for sale
Units sold
Cost/unit
COGS
Units
Cost/unit
Ending inventory
Beginning Inventory
34
$ 82.00
$ 2,788.00
Purchases:
20-Jan
25
$ 88.00
$ 2,200.00
30-Jan
$ -
$ -
$ -
TOTAL
59
84.54
$ 4,988.00
40
84.54
$ 3,382.00
19
$ 84.54
$ 1,606
FIFO
LIFO
Weighted Average Method
Sales Revenue
$ 5,360.00
$ 5,360.00
$ 5,360.00
(-) Cost of Goods Sold (as calculated above)
$ 3,316.00
$ 3,430.00
$ 3,382.00
Gross Margin
$ 2,044.00
$ 1,930.00
$ 1,978.00
FIFO method is resulting in highest Gross Profits of $ 2,044.This is because,
--the prices show increasing trend,
--cost of goods sold is valued on earlier purchases (at cheaper rate) than current purchases.
---Cost of Goods sold value is comparatively less than in other methods.
---Ending inventory is valued at ‘increased’ prices as inventory valuation is based on latest purchase price.
| FIFO | Cost of Goods available for sale | Cost of Goods Sold | Ending Inventory | ||||||
| Units | Cost/unit | COG for sale | Units sold | Cost/unit | COGS | Units | Cost/unit | Ending inventory | |
| Beginning Inventory | 34 | $ 82.00 | $ 2,788.00 | 34 | $ 82.00 | $ 2,788.00 | 0 | $ 82.00 | $ - |
| Purchases: | |||||||||
| 25 | $ 88.00 | $ 2,200.00 | 6 | $ 88.00 | $ 528.00 | 19 | $ 88.00 | $ 1,672.00 | |
| TOTAL | 59 | $ 4,988.00 | 40 | $ 3,316.00 | 19 | $ 1,672.00 | |||
| LIFO | Cost of Goods available for sale | Cost of Goods Sold | Ending Inventory | ||||||
| Units | Cost/unit | COG for sale | Units sold | Cost/unit | COGS | Units | Cost/unit | Ending inventory | |
| Beginning Inventory | 34 | $ 82.00 | $ 2,788.00 | 15 | $ 82.00 | $ 1,230.00 | 19 | $ 82.00 | $ 1,558.00 |
| Purchases: | |||||||||
| 20-Jan | 25 | $ 88.00 | $ 2,200.00 | 25 | $ 88.00 | $ 2,200.00 | 0 | $ 88.00 | $ - |
| TOTAL | 59 | $ 4,988.00 | 40 | $ 3,430.00 | 19 | $ 1,558.00 | |||
| Average Method | Cost of Goods available for sale | Cost of Goods Sold | Ending Inventory | ||||||
| Units | Cost/unit | COG for sale | Units sold | Cost/unit | COGS | Units | Cost/unit | Ending inventory | |
| Beginning Inventory | 34 | $ 82.00 | $ 2,788.00 | ||||||
| Purchases: | |||||||||
| 20-Jan | 25 | $ 88.00 | $ 2,200.00 | ||||||
| 30-Jan | $ - | ||||||||
| $ - | |||||||||
| $ - | |||||||||
| TOTAL | 59 | 84.54 | $ 4,988.00 | 40 | 84.54 | $ 3,382.00 | 19 | $ 84.54 | $ 1,606 |
