Inventory information for Part 311 of Crane Corp. discloses the following inform
ID: 2550482 • Letter: I
Question
Inventory information for Part 311 of Crane Corp. discloses the following information for the month of June.
June 1 Balance 302 units @ $11
June 10 Sold 198 units @ $27
11 Purchased 803 units @ $13
15 Sold 498 units @ $28
20 Purchased 498 units @ $14
27 Sold 296 units @ $30
Assuming that the periodic inventory method is used, compute the cost of goods sold and ending inventory under (1) LIFO and (2) FIFO.
Assuming that the perpetual inventory method is used and costs are computed at the time of each withdrawal, what is the value of the ending inventory at LIFO?
Assuming that the perpetual inventory method is used and costs are computed at the time of each withdrawal, what is the gross profit if the inventory is valued at FIFO?
Explanation / Answer
Periodic Inventory Method
1) LIFO
Total units sold = 198+498+296 = 992 units
Total units available for sale = Opening Bal on June 1+Total units purchased
= 302+(803+498) = 1,603 units
Ending inventory = Units available for sale - Units sold
= 1,603 units - 992 units = 611 units
Under LIFO, the ending inventory will be from goods purchased first (i.e. 302 units from opening bal and remaining 309 units from purchase made on june 11) and the cost of goods sold will be for 498 units purchased on June 20 and remaining 494 units (803 units - 309 units) from purchase made on June 11.
Cost of goods sold = (494 units*$13)+(498 units*$14)
= $6,422+$6,972 = $13,394
Ending Inventory = (302 units*$11)+(309 units*$13)
= $3,322+$4,017 = $7,339
2) FIFO
Under FIFO, the ending inventory will be from goods purchased last (i.e. 498 units from purchase made on June 20 and remaining 113 units (611 - 498) from purchase made on june 11) and the cost of goods sold will be from opening balance on june 1 of 302 units and remaining 690 units (803 units - 113 units) from purchase made on June 11.
Cost of goods sold = (302 units*$11)+(690 units*$13)
= $3,322+$8,970 = $12,292
Ending Inventory = (113 units*$13)+(498 units*$14)
= $1,469+$6,972 = $8,441
Perpetual Inventory Method
a) If costs are computed at the time of each withdrawal under LIFO method, then ending inventory will be of 104 units (302 units - 198 units sold) from opening balance, 305 units (803 units - 498 units sold) from purchase made on june 11 and 202 units (498 units - 296 units sold) from purchase made on June 20 at $14 per unit.
Ending Inventory = (104 units*$11)+(305 units*$13)+(202 units*$14)
= $1,144+$3,965+$2,828 = $7,937
b) Under FIFO method cost of goods sold and ending inventory would be same under both the system (i.e. periodic inventory system and perpetual inventory system)
Cost of goods sold = $12,292
Total Sales = (198 units*$27)+(498 units*$28)+(296 units*$30)
= $5,346+$13,944+$8,880 = $28,170
Gross Profit = Total Sales - Cost of goods sold
= $28,170 - $12,292 = $15,878
Therefore the gross profit if the inventory is valued at FIFO is $15,878.
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