Download Chp. 6 Lab Problem 1 SOLUTION SOLUTION Requirement 1 Using

Chp. 6 Lab Problem 1 SOLUTION
SOLUTION
Requirement 1
Using FIFO, ending merchandise inventory is $8,910 and cost of goods sold is $7,050.
Using LIFO, ending merchandise inventory is $7,800 and cost of goods sold is $8,160.
Using weighted-average, ending merchandise inventory is $8,360 and cost of goods sold is
$7,600.
Calculations:
Goods Available for Sale:
Unit
Total
Quantity
Cost
Cost
Oct. 1
90 units
× $ 70
= $ 6,300
3
20 units
× $ 75
= $ 1,500
12
40 units
× $ 78
= $ 3,120
18
60 units
× $ 84
= $ 5,040
Totals
210 units
Date
$ 15,960
FIFO Ending Merchandise Inventory:
Totals
Unit
Total
Quantity
Cost
Cost
60 units
× $ 84
= $ 5,040
40 units
× $ 78
= $ 3,120
10 units
× $ 75
= $
110 units
750
$ 8,910
FIFO Cost of Goods Sold:
Cost of Goods Available for Sale
Ending Merchandise Inventory
Cost of Goods Sold
$ 15,960
(8,910)
$ 7,050
LIFO Ending Merchandise Inventory:
Totals
Unit
Total
Quantity
Cost
Cost
90 units
× $ 70
= $ 6,300
20 units
× $ 75
= $ 1,500
110 units
$ 7,800
LIFO Cost of Goods Sold:
Cost of Goods Available for Sale
Ending Merchandise Inventory
Cost of Goods Sold
$ 15,960
(7,800)
$ 8,160
Weighted-average
15,960 cost of goods available for sale
=
cost per unit
/ 210 units available for sale
= $76 per unit
Weighted-Average Ending
Merchandise Inventory
= 110 units × $76 per unit
= $8,360
Weighted-Average Cost of Goods Sold:
Cost of Goods Available for Sale
Ending Merchandise Inventory
Cost of Goods Sold
$ 15,960
(8,360)
$ 7,600
Requirement 2
Gross profit is $19,950 using FIFO, $18,840 using LIFO, and $19,400 using weighted-average.
Calculations:
FIFO
LIFO
WeightedAverage
Sales Revenue
Cost of Goods Sold *
Gross Profit
$ 27,000
(7,050)
$ 19,950
* Calculated in Requirement 1.
$ 27,000
(8,160)
$ 18,840
$ 27,000
(7,600)
$ 19,400
Requirement 3
LIFO results in the lowest income taxes and FIFO results in the highest net income. Under
LIFO, the last costs into inventory are the first costs out to cost of goods sold. When inventory
costs are rising, LIFO results in the highest cost of goods sold; thus, the lowest gross profit, net
income, and taxable income. Under FIFO, the first costs into inventory are the first costs out to
cost of goods sold. When inventory costs are rising, FIFO results in the lowest cost of goods
sold; thus, the highest gross profit, net income, and taxable income.
Weighted-average method amounts fall somewhere in between FIFO and LIFO since this
method is based on the weighted average cost of inventory during the period.