Moran\'s Muffins, LLC uses the FIFO method of accounting for inventory (please k

Question

Moran's Muffins, LLC uses the FIFO method of accounting for inventory (please keep in mind that physical and financial flow are not interdependent). At the beginning of the year, the inventory balance was $356,500 and included 713,000 muffins. During the year, the company made 10 consecutive inventory purchases of 100,000 muffins each for $50,000 each. Toward the end of the year, the rutabaga paste that was die secret ingredient for Moran's Muffins increased in price. Accordingly, the last 5 purchases of the year were for purchases of 100,000 muffins each, but at costs of $60,000, $65,000, $70,000, $75,000, and $80,000 respectively. Ending inventory consisted of 900,000 muffins. In addition, the administrator ordering the last shipment of muffins pushed the wrong buttons resulting in the purchase of horseradish muffins that will only realize 25% of their usual sale price and are likely to sell slowly. Please provide the following: A workpaper that displays the account changes leading to ending balances for Inventory and Cost of Goods Sold. Prepare the footnote for inventory.

Explanation / Answer

Inventory: as per FIFO, the inventory will include the last purchases only so we will go backwards

2) Footnote : The last purchase was made wrong by the management so ith will result in loss in sale revenue and will result in reduction of inventory but as sale price is not given so that loss cannot be determined yet

COGS : The goods Left are sold = opening + Purchase - Closing

= 713,000 + 10,000,000 - 900,000 = 813,000

No. of units Amount 100,000 $ 80,000 100,000 $ 75,000 100,000 $ 70,000 100,000 $ 65,000 100,000 $ 60,000 400,000 $ 200,000 900,000 $ 550,000

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