Simple Plan Enterprises uses a periodic inventory system. Its records showed the

Question

Simple Plan Enterprises uses a periodic inventory system. Its records showed the following Inventory, December 31, using FIFO42 Units @ $18 $756 Inventory, December 31, using LIFO 42 Units @ $14 $588 Transactions in the Following Year Purchase, January 9 Purchase, January 20 Sale, January 11, (at $42 per unit) Sale, January 27 (at S43 per unit) Units Unit Cost Total Cost $19 20 1,026 2,080 54 104 84 60 Required: 1. Compute the number and cost of goods available for sale, the cost of ending inventory, and the cost of goods sold under FIFO and LIFO FIFO LIFO Number of Goods Available for Sale (Units) Cost of Goods Available for Sale Cost of Ending Inventory Cost of Goods Sold 2. Compute the inventory turnover ratio under the FIFO and LIFO inventory costing methods. (Round your answers to 2 decimal places.) FIFO LIFO Inventory Turnover Ratio 3. The inventory method used does make a significant difference in the inventory turnover ratio O Yes O No

Explanation / Answer

Answer 1.

FIFO:

Beginning Inventory = 42 * $18 = $756

Purchases = 54 * $19 + 104 * $20
Purchases = $3,106

Cost of Goods available for sale = Beginning inventory + Purchases
Cost of Goods available for sale = $756 + $3,106
Cost of Goods available for sale = $3,862

Number of units available for sale = Beginning inventory + Purchases
Number of units available for sale = 42 + 54 + 104
Number of units available for sale = 200

Cost of Goods Sold = 42 * $18 + 54 * $19 + 48 * $20
Cost of Goods Sold = $2,742

Cost of Ending Inventory = Cost of Goods available for sale - Cost of Goods Sold
Cost of Ending Inventory = $3,862 - $2,742
Cost of Ending Inventory = $1,120

LIFO:

Beginning Inventory = 42 * $14 = $588

Purchases = 54 * $19 + 104 * $20
Purchases = $3,106

Cost of Goods available for sale = Beginning inventory + Purchases
Cost of Goods available for sale = $588 + $3,106
Cost of Goods available for sale = $3,694

Number of units available for sale = Beginning inventory + Purchases
Number of units available for sale = 42 + 54 + 104
Number of units available for sale = 200

Cost of Goods Sold = 104 * $20 + 40 * $19
Cost of Goods Sold = $2,840

Cost of Ending Inventory = Cost of Goods available for sale - Cost of Goods Sold
Cost of Ending Inventory = $3,694 - $2,840
Cost of Ending Inventory = $854

Answer 2.

FIFO:

Average Inventory = (Beginning Inventory + Ending Inventory) / 2
Average Inventory = ($756 + $1,120) / 2
Average Inventory = $938

Inventory Turnover = Cost of Goods Sold / Average Inventory
Inventory Turnover = $2,742 / $938
Inventory Turnover = 2.92 times

LIFO:

Average Inventory = (Beginning Inventory + Ending Inventory) / 2
Average Inventory = ($588 + $854) / 2
Average Inventory = $721

Inventory Turnover = Cost of Goods Sold / Average Inventory
Inventory Turnover = $2,840 / $721
Inventory Turnover = 3.94 times

Answer 3.

Yes, the inventory method used does make a significant difference in the inventory turnover ratio.

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