Chapter 5: Q1DQ. (page 259)
Describe how costs flow from inventory to cost of goods sold for the following methods: (a) FIFO and (b) LIFO.
FIFO:Cost of oldest inventory is allocated to COGS.
LIFO:The cost of the newest inventory is allocated to COGS.
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Montoure Company uses a perpetual inventory system. It entered into the following calendar-year purchases and sales transactions. (For specific identification, units sold consist of 600 units from beginning inventory, 300 from the February 10 purchase, 200 from the March 13 purchase, 50 from the August 21 purchase, and 250 from the September 5 purchase.)
Date | Activities | Units acquired at cost | Units sold at retail |
Jan 1 | Beginning inventory | 600 units @ \(45.00 per unit | |
Feb 10 | Purchases | 400 units @ \)42.00 per unit | |
March 13 | Purchases | 200 units @ \(27.00 per unit | |
March 15 | Sales | 800 units @ \)75.00 per unit | |
Aug 21 | Purchases | 100 units @ \(50.00 per unit | |
Sep 5 | Purchases | 500 units @ \)46.00 per unit | |
Sep 10 | Sales | 600 units @ $75.00 per unit | |
Total | 1,800 units | 1,400 units |
Required: Compute the cost of goods available for sale and the number of units available for sale.
Use the data and results from Exercise 5-5 to prepare comparative income statements for the month of January for the company similar to those shown in Exhibit 5.8 for the four inventory methods. Assume expenses are $1,250, and that the applicable income tax rate is 40%. (Round amounts to cents.)
Required 1. Which method yields the highest net income?
Refer to the information in QS 5-4 and assume the perpetual inventory system is used. Determine the costs assigned to ending inventory when costs are assigned based on LIFO. (Round per unit costs and inventory amounts to cents.)
Refer to the information in Problem 5-3A and assume the periodic inventory system is used.
Required
2. Compute the number of units in ending inventory.
Warnerwoods Company uses a perpetual inventory system. It entered into the following purchases and sales transactions for March. (For specific identification, the March 9 sale consisted of 80 units from beginning inventory and 340 units from the March 5 purchase; the March 29 sale consisted of 40 units from the March 18 purchase and 120 units from the March 25 purchase.) Date Activities Units Acquired at Cost.
Date | Activities | Units acquired at cost | Units sold at retail |
March 1 | Beginning inventory | 100 units @ \(50.00 per unit | |
March 5 | Purchase | 400 units @ \)55.00 per unit | |
March 9 | Sales | 420 units @ \(85.00 per unit | |
March 18 | Purchase | 120 units @ \)60.00 per unit | |
March 25 | Purchase | 200 units @ \(62.00 per unit | |
March 29 | Sales | 160 units @ \)95.00 per unit | |
Total | 820 units | 580 units |
Required
4. Compute gross profit earned by the company for each of the four costing methods in part 3.
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