Download Chp. 6 Lab Problem 2 Solution Requirement 1 Using FIFO, ending

Chp. 6 Lab Problem 2 Solution
Requirement 1
Using FIFO, ending merchandise inventory is $11,080 and cost of goods sold is $8,600.
Using LIFO, ending merchandise inventory is $10,200 and cost of goods sold is $9,480.
Using weighted-average, ending merchandise inventory is $10,660 and cost of goods sold is
$9,020.
Calculations:
Goods Available for Sale:
Date
Quantity
Oct. 1 100 units
Unit
Total
Cost
Cost
× $ 78
= $ 7,800
3
40 units
× $ 80
= $ 3,200
12
60 units
× $ 82
= $ 4,920
18
40 units
× $ 94
= $ 3,760
Totals
240 units
$ 19,680
FIFO Ending Merchandise Inventory:
Totals
Unit
Total
Quantity
Cost
Cost
40 units
× $ 94
= $ 3,760
60 units
× $ 82
= $ 4,920
30 units
× $ 80
= $ 2,400
130 units
$11,080
FIFO Cost of Goods Sold:
Cost of Goods Available for Sale
Ending Merchandise Inventory
Cost of Goods Sold
$ 19,680
(11,080)
$ 8,600
LIFO Ending Merchandise Inventory:
Totals
Unit
Total
Quantity
Cost
Cost
100 units
× $ 78 =
$ 7,800
30 units
× $ 80 =
$ 2,400
130 units
$ 10,200
LIFO Cost of Goods Sold:
Cost of Goods Available for Sale
Ending Merchandise Inventory
Cost of Goods Sold
$ 19,680
(10,200)
$ 9,480
Weighted-average
cost per unit
= $19,680 cost of goods available for sale
/ 240 units available for sale
= $82 per unit
Weighted-Average Ending
Merchandise Inventory
= 130 units × $82 per unit
= $10,660
Weighted-Average Cost of Goods Sold:
Cost of Goods Available for Sale
Ending Merchandise Inventory
Cost of Goods Sold
$ 19,680
(10,660)
$ 9,020
Requirement 2
Gross profit is $14,400 using FIFO, $13,520 using LIFO, and $13,980 using weighted-average.
Calculations:
FIFO
LIFO
WeightedAverage
Sales Revenue
Cost of Goods Sold *
Gross Profit
$ 23,000
(8,600)
$ 14,400
*Calculated in Requirement 1.
$ 23,000
(9,480)
$ 13,520
$ 23,000
(9,020)
$ 13,980
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.