Question

$4,10 6 100 800 E8.11 (103) (Compute FIFO and Average-Cost-Periodic) The following information is related to radios for the Couples Company for the month of July Units Units Selling Date Transaction Units In Cost Total Sold Price Total July 1 Balance $410 Purchase 4.30 3,440 Sale $7.00 $ 2.100 Sale 7.30 2.190 Purchase 1.804 15 Sale 7.40 1.480 Purchase 300 1,380 22 Sale 2.960 25 Purchase 500 4.58 2,290 30 Sale 200 7.50 1,500 Totals 2,100 $9,324 1.400 $10,230 4.51 400 7.40 Sed Instructions a. Assuming that the periodic inventory method is used, compute the inventory cost at July 31 under each of the following cost flow assumptions. (Ignore taxes.) 1. FIFO. 2. Weighted-average. b. Answer the following questions. 1. Which of the methods used above will yield the highest figure for gross profit for the income statement? Explain why. 2. Which of the methods used above will yield the highest figure for ending inventory for the state- ment of financial position? Explain why.

Answer 1

FIFO is method of inventory valuation on which inventory purchase 1st will sold 1st.

Weighted average method is also a inventory valuation method on which average cost of inventory is used to compute ending inventory as well as cogs.

A) Under periodic :

1. FIFO:

Under FIFO method Units cos Total cost 100 4.10 $ 410.00 800 $ 4.30 $3,440.00 400 $ 4.51$1,804.00 300 $ 4.60 $1,380.00 500 $ 4.58 $2,290.00 Particular Units S.no 1 Balance 2 Purchase 3 Second Purchase 4 3rd Purchase 5 4th Purchase $9,324.00 Cost Of Goods Available 2100 700 Less: Ending incentory $3,210.00 1400 $6,114.00 Cost of goods sold

2. Average method:

Under Average method Particular Units 100 $ 4.10 $410.00 Units cos Total cost S.no 1 Balance 2 Purchase 800 $ 4.30 $3,440.00 400 $ 4.51$1,804.00 300 $ 4.60 $1,380.00 500 $ 4.58 $2,290.00 2100 $ 4.44 $9,324.00 3 Second Purchase 43rd Purchase 5 4th Purchase Cost Of Goods Available Less ending Cost of goods sold 4.44 $3,108.00 700 S 1400 $ 4.44 $6,216.00

Average cost = $9,324/2100

= $4.44

(B)

1. FIFO method is used to compute higher gross profit because under FIFO method Inventory purchase at 1st will sold 1Srt due to that Ending inventory will represent at current cost and higher ending inventory as well as lower cost of goods sold lead higher gross profit,

hence, use FIFO methd

2.FIFO method because, Under FIFO method Inventory purchase at 1st will sold 1Srt due to that Ending inventory will represent at current cost so ending inventory will show with higher figure.

use FIFO method