EXERCISES CHAPTER 7
1
Units
Unit
Cost
Total
Cost
January 1, 2012 – Beginning inventory
January 30, 2012 – Purchase
May 1, 2012 – Purchase
400
600
460
$3.00
3.20
3.50
$ 1,200
1,920
1,610
Goods available for sale
1,460
$4,730
Ending inventory: 1,460 units – (160 + 700) = 600 units
a) and c)
1.
2.
Average cost:
Average unit cost
$4,730 ÷ 1,460 = $3.24
Ending inventory
(600 units x $3.24) =
$1,944
Cost of goods sold
($4,730 – $1,944)
$2,786
First-in, first-out:
Ending inventory
Cost of goods sold
3.
(140 units x $3.20) =
$2,058
($4,730 – $2,058)
$2,672
Last-in, first-out:
Ending inventory
Cost of goods sold
4.
(460 units x $3.50) +
(400 units x $3.00) +
(200 units x $3.20) =
$1,840
($4,730 – $1,840)
$2,890
Specific identification:
Ending inventory
(0 units x $3.00)
+
(504 units x $3.20) +
Cost of goods sold
(96 units x $3.50) =
$1,949
($4,730 – $1,949)
$2,781
2
Units
$/Unit
Total Value
FIFO
COGS
Beginning
Inventory
7,000
$5.00
$35,000.00
7,000
$35,000.00
March 5
19,000
$9.00
$171,000.00
17,000
$153,000.00
September 19
Goods available
for sale
Units sold
(8,000+16,000)
10,000
$11.00
$110,000.00
(24,000)
Ending Inventory
12,000
36,000
LIFO
COGS
14,000.00
$126,000.00
10,000.00
$110,000.00
24,000
$236,000.00
$316,000.00
24,000
$188,000.00
$128,000.00
$80,000.00
*) The ending inventory can be calculated as the difference between the value of goods
available for sale and the cost of goods sold (FIFO: 316,000-188,000; LIFO: 316,000236,000) or alternatively as weighted average of the remaining unsold units times their
appropriate prices.
3
Income Statement
FIFO
LIFO
Sales Revenue
(8,000*$28+16,000*30)
$704,000.00
$704,000.00
Beginning inventory
Purchases
Goods available for sale
Ending inventory
Cost of goods sold
$35,000.00
$281,000.00
$316,000.00
$128,000.00
$188,000.00
$35,000.00
$281,000.00
$316,000.00
$80,000.00
$236,000.00
Gross Profit
$516,000.00
$468,000.00
Operating Expenses
$500,000.00
$500,000.00
Pre-tax Income/Loss
$16,000.00
$(32,000.00)
If the company is using FIFO it will show an income and higher value of the ending
inventory, while if LIFO is used a loss will be reported and lower value of the ending
inventory.
LIFO inventory method would be preferred for tax purposes.
4