Question

The president of the company, Connie Kilmer, has asked for your advice on which inventory cost flow method should be used for the 32,000-unit physical inventory that was taken on December 31, using perpetual inventory.

Discuss how you would advise Ms. Kilmer about what inventory method to select, based on the data above, comparing and contrasting the LIFO and FIFO inventory cost flow methods and their potential impacts on the company's financial statements.

Golden Eagle Company began operations on April 1 by selling a single product. Data on purchases and sales for the year are as follows: Purchases: Date Units Purchased Unit Cost Total Cost $36.60 39.00 39.60 42.00 April 6 May 18 June 6 July 10 August 10 October 25 November 4 December 10 31,000 33,000 40,000 40,000 27,200 12,800 8,000 8,000 200,000 42.75 $1,134,600 1,287,000 1,584,000 1,680,000 1,162,800 556,800 358,800 384,000 $8,148,000 43.50 44.85 48.00 Sales: 16,000 units 16,000 20,000 24,000 28,000 April May June July August September October November December Total units Total sales 28,000 18,000 10,000 8,000 168,000 $10,000,000

Answer 1

Correct Answer:

Perpetual	FIFO	LIFO
Ending Inventory	$      1,436,400.00	$       1,212,000.00
Cost of Goods Sold	$            6,711,600	$ 6,936,000

Working:

	FIFO
A	Total Units Available for sale			200000		$             8,148,000
	Units Sold			168000
	Ending Inventory Units			32000
	Valuation
	Cost of Goods Sold		31000		$                         36.60	$       1,134,600.00
			33000		$                         39.00	$       1,287,000.00
			40000		$                         39.60	$       1,584,000.00
			40000		$                         42.00	$       1,680,000.00
			24000		$                         42.75	$       1,026,000.00
B	Cost of Goods Sold		168000	units		$       6,711,600.00
A-B	Ending Inventory		32000	units		$       1,436,400.00

	LIFO
A	Total Units Available for sale			200000		$       8,148,000.00
	Units Sold			168000
	Ending Inventory Units			32000
	Valuation
	Cost of Goods Sold		16000		$                         36.60	585,600.00
			16000		$                         39.00	624,000.00
			20000		$                         39.60	792,000.00
			24000		$                         42.00	1,008,000.00
			27200		$                         42.75	1,162,800.00
			800	$            28,000.00	$                         42.00	33,600.00
			15200		$                         42.00	638,400.00
			12800	$            28,000.00	$                         39.60	506,880.00
			12800		$                         43.50	556,800.00
			5200	$            18,000.00	$                         39.60	205,920.00
			8000		$                         44.85	358,800.00
			2000	$            10,000.00	$                         39.60	79,200.00
			8000		$                         48.00	384,000.00
B	Cost of Goods Sold		168000	units		$ 6936000
A-B	Ending Inventory		32000	units		$       1,212,000.00

End of answer.

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