Express Distribution markets CDs of the performing artist Fishe. At the beginnin
ID: 2450273 • Letter: E
Question
Express Distribution markets CDs of the performing artist Fishe. At the beginning of October, Express had in beginning inventory 3,500 of Fishe's CDs with a unit cost of $7. During October, Express made the following purchases of Fishe's CDs. During October, 19,075 units were sold. Express uses a periodic inventory system. Determine the cost of goods available for sale. Calculate cost per unit. 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). 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?Explanation / Answer
OPENING INVENTORY=3,500
ADD:PURCHASE:
ON OCT 3 =4,375
ON OCT 9 =6,125
ON OCT 19 =5,250
ON OCT 25 =7,000
26,250
LESS:SALES =19,075
CLOSING INVENTORY=7,175
COST OF GOODS AVAILABLE FOR SALE ASSUMING FIFO METHOD=4,375@$8+6,125@$9+5,250@$10+3,325@$11=$1,79,200
COST PER UNIT=$1,79,200/19,075=$9.39
7,000*$11+1,75*$10
=$78,750
4,375*$8+2,800*$9
=$60,200
7,000*$11+5,250*$10+6,125*$9+700*$8
=$1,90,225
19,075*$9.65
=$1,84,074
NOTE 1:CALCULATION OF AVERAGE COST
AVERAGE COST=(4,375*$8+6,125*$9+5,250*$10+7,000*$11)/22,750=$2,19,625/22,750=$9.65
FIFO METHOD RESULTS IN HIGHEST INVENTORY AMOUNT IN BALANCESHEET.
LIFO METHOD RESULTS IN HIGHEST COST OF GOODS SOLD IN INCOME STATEMENT
FIFO LIFO AVERAGE COST COST OF CLOSING INVENTORY OF 7,175($)7,000*$11+1,75*$10
=$78,750
4,375*$8+2,800*$9
=$60,200
7,175*$9.65(NOTE 1)=$69,239 COST OF GOODS SOLD($) $1,79,2007,000*$11+5,250*$10+6,125*$9+700*$8
=$1,90,225
19,075*$9.65
=$1,84,074
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