Exercise 8-16 Presented below is information related to Blowfish radios for the

Question

Exercise 8-16 Presented below is information related to Blowfish radios for the Hootie Company for the month of July. Date Transaction Units In Unit Cost Total Units Sold Selling Price Total July 1 Balance 140 $3.20 $ 448 6 Purchase 1,120 3.65 4,088 7 Sale 420 $7.00 $ 2,940 10 Sale 420 7.26 3,049 12 Purchase 560 4.72 2,643 15 Sale 280 7.53 2,108 18 Purchase 420 5.53 2,323 22 Sale 560 7.88 4,413 25 Purchase 700 5.48 3,836 30 Sale 280 8.10 2,268 Totals 2,940 $13,338 1,960 $14,778 Calculate average cost per unit. (Round answer to 2 decimal places, e.g. 2.76.) Weighted-average cost $ LINK TO TEXT Assuming that the periodic inventory method is used, compute the inventory cost at July 31 under each of the following cost flow assumptions. (Round answers to 0 decimal places, e.g. 6,578.) (1) FIFO. (2) LIFO. (3) Weighted-average. (1) FIFO (2) LIFO (3) Weighted-Average Ending Inventory at July 31 $ $ $ LINK TO TEXT Which of the methods used above will yield the lowest figure for gross profit for the income statement? method will yield the lowest gross profit. Which of the methods used above will yield the lowest figure for ending inventory for the balance sheet? method will yield the lowest ending inventory.

Explanation / Answer

Calculation of ending inventory under FIFO method:

Ending inventory = Beginning inventory + Purchases – Cost of goods sold

= $448 + ($4,088 + $2,643 + $2,323 + $3,836) – ($448 +$4,088 +$2,643 + $774.20)

= $5,384.80

Calculation of ending inventory under LIFO method:

Ending inventory = Beginning inventory + Purchases – Cost of goods sold

= $448 + ($4,088 + $2,643 + $2,323 + $3,836) – ($3,836 + $2,323 +$2,643 + (280 units *$3.65) $1,022)

= $13,338 -$9,824

= $3,514

Calculation of ending inventory under weighted average method:

Ending inventory = Beginning inventory + Purchases – Cost of goods sold

= $448 + ($4,088 + $2,643 + $2,323 + $3,836) – [($3.65 + $4.72+$5.53)/3 * 1,960 units]

= $13,338 - $9,075

= $4,263

Under the three of the above FIFO, LIFO, and Weighted average method, ending inventory is low in LIFO method. Therefore, gross profit would be low under LIFO method itself. For income statement, LIFO method figures out lowest gross profit and lowest ending inventory for balance sheet purpose.

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