1. Dave Inc.\'s inventory records for a particular development program show the

ID: 2601602 • Letter: 1

Question

1. Dave Inc.'s inventory records for a particular development program show the following at October 31 (Click the icon to view the accounting records.) At October 31, 9 of these programs are on hand. Requirements 1. Compute cost of goods sold and ending inventory, using each of the following methods: a. Specific unit cost, with three $165 units and six $175 units still on hand at the end b. Average cost c. First-in, first-out d. Last-in, first-out Which method produces the highest cost of goods sold? Which method produces the lowest cost of goods sold? What causes the difference in cost of goods sold? 2. Requirement 1. Compute cost of goods sold and ending inventory, using each of the following four inventory methods: Begin by entering the number of units sold and number of units in ending inventory. Then calculate cost of goods sold and ending inventory using (a) specific unit cost, then (b) average cost, then (c) FIFO, and finally (d) LIFO. (Round the average cost per unit to the nearest cent. Round all final answers to the nearest whole dollar.) Number of units Specific unit cost Average cost FIFO LIFO Cost of goods sold Ending inventory Requirement 2. Which method produces the highest cost of goods sold? Which method produces the lowest cost of goods sold? What causes the difference in cost of goods sold? Which method produces the highest cost of goods sold? (1) Which method produces the lowest cost of goods sold? (2) The difference in cost of goods sold under the two methods identified above was caused by (3) 1: Data Table Oct 1 Beginning inventory 6 units S 165- S 990 5 units 166 830 10 units175 1,750 15 Purchase 26 Purchase (1) O average cost (2) O average cost (3) FIFO LIFO the decrease in inventory unit cost the increase in inventory unit cost the difference in the number of units sold FIFO LIFO () Specific unit cost Specific unit cost

Explanation / Answer

1. Calculation of Cost of goods sold & closing inventory

Requirement 1.

Number of units

Specific Unit Cost

Average

FIFO

LIFO

Cost of Goods Sold

(6-3) x 165 + 5 x 166 + (10 – 6) x 175 = $2,025

12 x $170 = $2,040

6 x 165 + 5 x 166 + 1 x 175 = $1,995

10 x 175 + 2 x 166 = $2,082

Ending Inventory

3 x 165 + 6 x 175 = $1,545

9 x 170 = $1,530

9 x 175 = $1,575

3 x 166 + 6 x 165 = $1,488

Note 1: Calculation of Units sold

Opening Inventory + Purchase – Closing Inventory = Units Sold

6 + 5 +10 – 9 = 12 units sold

Note 2: Calculation of Average Cost

Average Cost = Opening Inventory + Purchase Amount / Total number of goods

= 990 + 2,580 / 21 = $170 per unit

2. a. Highest cost of goods sold is produced by LIFO method $2,082. This is because LIFO method takes into account last purchases as sold first. Since the last purchases was of higher per unit cost, LIFO method takes higher cost of goods sold than any other method.

b. Lowest cost of goods sold is produced by FIFO method.

c. The difference in cost of goods sold is because of the reason that LIFO takes into account last purchases as sold first. Whereas, FIFO takes first purchases at lower price to be sold first. This means expense is booked at higher rate in LIFO than in FIFO.