P6-3 Mullins Distribution markets CDs of numerous performing artists. At the beg
ID: 2543539 • Letter: P
Question
P6-3 Mullins Distribution markets CDs of numerous performing artists. At the begi of March, Mullins had in beginning inventory 2,500 CDs with a unit cost of $7. Duri March, Mullins made the following purchases of CDs March 5 2,000 @$8 March 13 3,500 @$9 March 21 5,000 $10 March 26 2,000 @ $11 During March 12,000 units were sold. Mullins uses a periodic inventory system. Instructions (a) Determine the cost of goods available for sale. (b) 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). Prove the accuracy of the cost of goods sold under the FIFO and LIFO methods. (Note: For average-cost, round cost per unit to three decimal places.) (c) 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
a.
Cost of goods available for sale:
March 1 beginning inventory 2500 units * $7 = $17500
5 purchases 2000 units * $8 = $16000
13 purchases 3500 units * $9 = $31500
21 purchases 5000 units * $10 = $50000
26 purchases 2000 units * $11 = $22000
15000 units $137000
b.
FIFO:
Cost of goods sold:
2500 units * $7 = $17500
2000 units * $8 = $16000
3500 units * $9 = $31500
4000 units * $10 = $40000
$105000
Ending inventory:
1000 units * $10 = $10000
2000 units * $11 = $22000
$32000.
LIFO:
Cost of goods sold:
2000 units * $11 = $22000
5000 units * $10 = $50000
3500 units * $9 = $31500
1500 units * $8 = $12000
$115500.
Ending inventory:
2500 units * $7 = $17500
500 units * $8 = $4000
3000 units $21500.
Average cost:
Average cost per unit = $137000 / 15000 units
= $9.13.
Cost of goods sold:
12000 units * $9.13 = $109560
Ending inventory:
3000 units * $9.13 = $27390.
c.
FIFO has highest ending inventory($32000) in the balance sheet
LIFO has highest cost of goods sold ($115500) in the income statement.
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