Chapter 5: Question 18QS_3 (page 261)
Identify the inventory costing method best described by each of the following separate statements. Assume a period of increasing costs.
_____3. Provides a tax advantage (deferral) to a corporation when costs are rising.
LIFO Method.
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Aloha Company uses a perpetual inventory system. It entered into the following calendar-year purchases and sales transactions. (For specific identification, the May 9 sale consisted of 80 units from beginning inventory and 100 units from the May 6 purchase; the May 30 sale consisted of 200 units from the May 6 purchase and 100 units from the May 25 purchase.)
Date | Activities | Units acquired at cost | Units sold at retail |
May 1 | Beginning inventory | 150 units @ \(300.00 per unit | |
May 6 | Purchase | 350 units @ \)350.00 per unit | |
May 9 | Sales | 180 units @ \(1,200.00 per unit | |
May 17 | Purchase | 80 units @ \)450.00 per unit | |
May 25 | Purchase | 100 units @ \(458.00 per unit | |
May 30 | Sales | 300 units @ \)1,400.00 per unit | |
680 units | 480 units |
Required
Compute the cost assigned to ending inventory using (a) FIFO, (b) LIFO, (c) weighted average, and (d) specific identification. (Round all amounts to cents.)
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
3. Compute the cost assigned to ending inventory using (a) FIFO, (b) LIFO, (c) weighted average, and (d) specific identification. (Round all amounts to cents.)
BTN 5-7 Review the chapter’s opening feature highlighting Brad Gillis and Ben Friedman and their company, Homegrown Sustainable Sandwich Shop. Assume that Homegrown consistently maintains an inventory level of \(30,000, meaning that its average and ending inventory levels are the same. Also assume its annual cost of sales is \)120,000. To cut costs, Brad and Ben propose to slash inventory to a constant level of $15,000 with no impact on cost of sales. They plan to work with suppliers to get quicker deliveries and to order smaller quantities more often.
Required
Evaluate and comment on the merits of their proposal given your analysis for part 1. Identify any concerns you might have about the proposal.
If costs are declining, will the LIFO or FIFO method of inventory valuation yield the lower cost of goods sold? Why?
A physical inventory of Liverpool Company taken at December 31 reveals the following.
Item | Units | Cost per unit | Market per unit |
Car audio equipment | |||
Speaker | 345 | \(90 | \)98 |
Stereos | 260 | 111 | 100 |
Amplifiers | 326 | 86 | 95 |
Subwoofers | 204 | 52 | 41 |
Security equipment | |||
Alarms | 480 | 150 | 125 |
Locks | 291 | 93 | 84 |
Cameras | 212 | 310 | 322 |
Binocular equipment | |||
Tripods | 185 | 70 | 84 |
Stabilizers | 170 | 97 | 105 |
Required
Compute the lower of cost or market for the inventory applied separately to each item.
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