PB7-1 Analyzing the Effects of Four Alternative Inventory Methods in a Periodic

Question

PB7-1 Analyzing the Effects of Four Alternative Inventory Methods in a Periodic Inventory System [LO 7-3] Mojo Industries tracks the number of units purchased and sold throughout each accounting period but applies its inventory costing method at the end of each period, as if it uses a periodic inventory system. Assume its accounting records provided the following information at the end of the accounting period, January 31. The inventory's selling price is $11 per unit. Transactions Inventory, January 1 Sale, January 10 Purchase, January 12 Sale, January 17 Purchase, January 26 Units 310 (210) 360 (170) 80 Unit Cost Total Cost $1,085 $3.50 4.00 5.00 1,440 400 Assuming that for Specific identification method (item 1d) the January 10 sale was from the beginning inventory and the January 17 sale was from the January 12 purchase. Required 1. Compute the amount of goods available for sale, ending inventory, and cost of goods sold at January 31 under each of the following inventory costing methods: (Round your intermediate calculations to 2 decimal places and final answers to the nearest dollar amount.) Cost of Goods Sold Amount of Goods Available for Sale Ending Inventory a. Weighted average cost b. First-in, first-out c. Last-in, first-out d. Specific identification

Explanation / Answer

1)

Cost of goods available for sale = beginning +purchase

       = 1085+1440+400

         = 2925

Units available for sale : 310+360+80= 750

Unit sold = 210+170=380

Ending inventory : 750 -380 = 370

Weighted avergae cost per unit = 2925 /750 = $ 3.9

Under FIFO units acquired first are sold first so ending inventory is left from last purchase

Under LIFO unit acquired last are sold first so ending inventory is left from initial balance

[80*5]+[290*4]

400+1160

1560

[310*3.5]+[60*4]

1085+ 240

1325

2925-1415

1510

[210*3.5]+[170*4]

735+ 680

1415

2-a)

Lowest cost of goods sold means higher gross profit

LIFO

2-B)Highest cost of goods sold means lower income and thus taxes

FIFO

Amount of goods available for sale Ending inventory cost of good sold Weighted average cost 2925 3.9*370= 1443 2925-1443= 1482 FIFO 2925

[80*5]+[290*4]

400+1160

1560

1365 LIFO 2925

[310*3.5]+[60*4]

1085+ 240

1325

1600 Specific identification 2925

2925-1415

1510

[210*3.5]+[170*4]

735+ 680

1415

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