P6-2A Determine cost of goods sold and ending inventory using FIFO, LIFO, and av
ID: 2547655 • Letter: P
Question
P6-2A Determine cost of goods sold and ending inventory using FIFO, LIFO, and average-cost with analysis. (LO 2), AP Mullins Distribution markets CDs of numerous performing artists. At the beginning of March, Mullins had in beginning inventory 2,500 CDs with a unit cost of $7. During March. Mullins made the following purchases of CDs. March 5 2.000@ $8 March 21 5,000@ $10 March 13 3.500@ $9 March 26 2,000@ $11 During March 12,000 units were sold. Mullins uses a periodic inventory system. Instructions Determine the cost of goods available for sale. Determine (1) the ending inventory and (2) the cost of goods sold under each of th assumed of goods sold under the FIFO and LIFO methods. (Note: For average-cost. round cost pe unit to three decimal places.) Cost of goods sold: cost flow methods (FIFO, LIFO, and average-cost). Prove the accuracy of the cost FIFO LIFO$115,500 Average $109,601 $105,000 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
Part (a)
Calculation of cost of goods available for sale-
1. Cost of beginning inventory- (2,500 CDs* $7 per unit) = $ 17,500
2. Cost of goods purchased-
March 5- 2,000* $8 = $16,000
March 13- 3,500* $9 = $31,500
March 21- 5,000* $10 = $50,000
March 26- 2,000*$11 = $22,000
Total $119,500
3. Cost of goods available for sale (1+2) = $137,000
Part (b)
FIFO Method- Units which were purchased first will be sold first
12,000 units were sold during the month of March
Calculation of Cost of Goods Sold-
1. Sales from beginning inventory- (2,500 units* $7) = $17,500
2. Sales from the goods purchased during the month
March 5 (2,000* $8) = $16,000
March 13 (3,500* $9) = $31,500
March 21 (4,000* $10) = $40,000
Total $87,500
3. Cost of goods sold (1+2) = $105,000
Calculation of ending inventory-
March 21 (1,000* $10) = $10,000
March 26 (2,000* $11) = $22,000
Total = $32,000
LIFO Method- Units which were purchased in the end will be sold first
Calculation of cost of goods sold-
Sales from goods purchased during the month-
March 26 (2,000* $11) = $22,000
March 21 (5,000* $10) = $50,000
March 13 (3,500* $9) = $31,500
March 5 (1,500* $8) = $12,000
Total $115,500
Calculation of ending inventory-
March 5 (500* $8) = $4,000
Beginning inventory (2,500* $7) = $17,500
Total $ 21,500
Average Cost Method-
Calculation of Weighted Average Cost Per Unit-
Cost of goods available for sale= $137,000
Total number of units available for sale= 15,000 units
Cost per unit = 137,000/15,000 = $ 9.13 approx
Cost of goods sold = 12,000 units* $9.13 = $109,600
Ending inventory= 3,000 units*$9.13= $27,400
Part (c)
1. Highest amount of inventory is in FIFO method i.e. $32,000
2. Highest amount of cost of goods sold is in LIFO method i.e. $115,500
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