Newman’s Televisions produces television sets in three categories: portable, mid
ID: 2573360 • Letter: N
Question
Newman’s Televisions produces television sets in three categories: portable, midsize, and flat-screen. On January 1, 2017, Newman adopted dollar-value LIFO and decided to use a single inventory pool. The company’s January 1 inventory consists of:
Category
Quantity
Cost per Unit
Total Cost
Portable
6,300
$125
$ 787,500
Midsize
7,700
313
2,410,100
Flat-screen
2,900
500
1,450,000
16,900
$4,647,600
During 2017, the company had the following purchases and sales.
Category
Quantity
Purchased
Cost per Unit
Quantity
Sold
Selling Price
per Unit
Portable
14,400
$138
13,800
$188
Midsize
20,100
375
23,300
506
Flat-screen
10,100
625
6,300
750
44,600
Calculate price index and Compute ending inventory, cost of goods sold, and gross profit and Assume the company uses three inventory pools instead of one. Compute ending inventory, cost of goods sold, and gross profit.
Category
Quantity
Cost per Unit
Total Cost
Portable
6,300
$125
$ 787,500
Midsize
7,700
313
2,410,100
Flat-screen
2,900
500
1,450,000
16,900
$4,647,600
Explanation / Answer
Dollar Value LIFO(Single Inventory Method)
Ending inventory
Ending Inventory
(Quantity)
Ending inventory base cost($)
=(A)
Ending inventory Current cost($)
=(B)
Multiple pools price index
=(B/A)
Price Index = ending inventory at current cost/ending inventory at base cost = $6,827,000/$5,621,000 = 1.21
LIFO Layer = 18100-16900 = 1,200
Ending Inventory LIFO:
base layer ($4,647,600 ) *1 = $4,647,600
+ incremental layer ($5,621,000 - $4,647,600)*1.21 = 1,177,814
=Ending inventory LIFO$ = $5,825,414
COGS:
base beginning inventory = $4,647,600
+ total purchases = $15,837,200
=cost of goods available = $20,484,800
(-) Ending inventory LIFO$ = $5,825,414
cost of goods sold = $14,659,386
Gross profit:
total sales= 13800*188 + 23300*506 + 6300*750 = $19,109,200
GP = sales - COGS = $19,109,200 - $14,659,386 = $4,449,832
item beginning inventory quantity purchased Quantity soldEnding Inventory
(Quantity)
Ending inventory base cost($)
=(A)
Ending inventory Current cost($)
=(B)
Multiple pools price index
=(B/A)
Portable 6300 14,400 13800 6900 @$125 = 862,500 @$138 = 952,000 = 1.104 Mid size 7700 20,100 23300 4500 @$313 =1,408,500 @$375 = 1,687,500 = 1.198 Flat Screen 2900 10100 6300 6700 @$500=3,350,000 @$625 = 4,187,500 = 1.25 total 16900 44600 43400 18100 5621000 6827000