Periodic Inventory System and Inventory Costing Methods P2. The inventory of Woo
ID: 2446618 • Letter: P
Question
Periodic Inventory System and Inventory Costing Methods P2. The inventory of Wood4Fun and data on purchases and sales for a two-month tollow. The company closes its books at the end of each month. It uses the inventory system. penod he periodic Apr. 1 Beginning inventory 50 units @ $204 100 units @ $220 90 units 60 units 100 units @ $216 50 units @ $224 60 units @ $234 10 Purchase 17 Sale 30 Ending inventory May 2 Purchase 14 Purchase 22 Purchase 30 Sale 31 Ending inventory 200 units 70 units REQUIRED 1. Compute the cost of ending inventory of Wood4Fun on April 30 and May 31 using 2. Compute the cost of the ending inventory on April 30 and May 31 using the FIHO 3. Compute the cost of the ending inventory on April 30 and May 31 using the LIFO 4. ACCOUNTING CONNECTIONDo the cash flows from operations for April and the average-cost method. In addition, determine cost of goods sold for April and May. (Round unit costs to the nearest cent.) method. In addition, determine cost of goods sold for April and May method. In addition, determine cost of goods sold for April and May May differ depending on which inventory costing method is used--average-co FIFO, or LIFO? Explain.Explanation / Answer
It is a problem on issue of materials. Materials during the month are purchased in different lots at different price. They are kept in the same location. So they get mixed up and loses their identity. Hence problem crops up at the time of their issue for sale Ddifferent methods are available to issue price determination. Here FIFo method has been used.
First use the procedure known as weighted average. Here you have to ascertain total value and total quantities of materials available at the time of issue. Then divide total cost by total quantities to get average cost per uit. Use this rate for issuing materials for sale. Calculations are show below:
From the above table following answers are observed:
1. Inventory at the end of April is 60 units of $12,880
2. Inventory of May end is 70 units of $16,482.96
3. Cost of goods sold of April is 90 units of 19,320
4. Cost of goods sold in May is 200 uits of $ 44,237.05
The term FIFO will mean first in first out. So materials entering first in the stores will be issued first. On the basis of this procedure table is prepared below
From the data of the table aswers are as follows:
1. Ending Inventory of april 30 is 60units of $220. Total value is $13,200
2. Ending Inventory of May 31st is 70 units valued $16,280
3. Cost of goods sold in April is 90 units of total value $19,000
4. Cost of goods sold i May is 200 units of $43,760
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Answer of part (3)
Now consider Last in First out (LIFO) method. Here materials received last are issued first. The calculations are shown below:
On the basis of above data the answers are as follows:
1. Inventory on 30 the April is 60 units of $12,400.
2. Inventory of May end is 70 units of $14,560
3. Cost of goods sold in April is 90 units of $19,800
4. Cost of goods sold in May end is 200 units of $43,840
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Answer 5;
Cash flow will depend upon Inventory valuation method used. Cost of goods sold is deducted from sales to get gross profit. It is high if FIFO method is used and inflation is there. It will be lowest one if LIFo method is used in inflation. Thus in inflation LIFo is better as it maintains conservative approach in profit/cash flow detemination in inflation. Just opposite observation is valid in defaltion. Average is in between these two extreme. Here impact is very nominal.
Statement showing receipts and issues under Average method Date Receipts Issues End balance Units rate($) Amount ($) Units Rate($) Amount ($) Units Rate($) Amount ($) 1-Apr 50 204 10200 10-Apr 100 220 22000 50 204 10200 100 220 22000 150 214.667 32200 17-Apr 90 214.667 19320 60 214.667 12880 1-May 60 214.667 12880 2-May 100 216 21600 60 214.667 12880 100 216 21600 160 34480 14-May 50 224 11200 60 214.667 12880.02 100 216 21600 50 224 11200 210 45680.02 22-May 60 234 14040 60 214.667 12880.02 100 216 21600 50 224 11200 60 234 14040 270 221.185 59720.02 30-May 200 221.185 44237.052 70 221.185 15482.96815 Total 200 221.185 44237.052 70 15482.96815