ACCT 203 Lecture Notes - Lecture 6: Inventory Turnover, Gross Margin, Weighted Arithmetic Mean

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raspberryimpala524

18 Jan 2017

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Note, the only new types of transactions (journal entries or fsets) in this topic is that related to the lcm. However, if you do not understand the transaction analysis issues covered in topic 5, you will not understand many of the concepts in topic 6. Fifo, lifo, and weighted-average are often referred to as inventory methods. however, this is not exactly correct. Fifo, lifo, and weighted- average can each be used with either the perpetual or periodic inventory method. Lifo, and weighted-average are inventory cost flow assumptions. But, for the sake of brevity, they are usually referred to as inventory methods, and i will sometimes do this as well. Effects of different inventory methods affect financial statements. First-in-first-out (fifo) assumes that a company sells inventory in the order in which it was purchased. Thus, the first, or oldest, inventory available will be the next, or first, inventory that is sold.

Related Questions

During January, a companythat uses a perpetual inventory system had beginning inventory,purchases, and sales as follows:
Units Unit cost

Beggininginventory 100 10

Jan 5purchased 40 12

Jan 10sold 60

Jan 15purchased 70 13

Jan 25sold 50

** The selling priceper unit is $20.

1. Using the perpetual inventory system, calculate the total cost ofgoods sold for January and cost of the company's January31^st inventory for the following methods. Show all your work using the format used in thetext!

a) FIFO

b) LIFO

c) Weighted average

d) Prepare journal entries for the events listed in the questionusing the amounts calculated using in (a) FIFO method.

2. Using the periodic inventory system, calculate the cost of goodssold for January and cost of the company's January 31^stinventory for the following methods. Showall your work using the format provided in the appendix of thechapter in the text!

a) FIFO

b) LIFO

c) Weighted average

3. A company made thefollowing purchases during the year:

Jan 10: 15 units @ 360each

Mar 25: 25 units @390each

April 25: 10 units @ 420each

July 30: 20 units @ 450each

Oct 10: 15 units @ 480each

On December 31, there were28 units in ending inventory. These 28 units consisted of 1 fromthe January 10 purchase, 2 from the March 15 purchase, 5 from theApril 25 purchase, 15 from the July 30 purchase, and 5 from theOctober 10 purchase. Using perpetual inventory system, calculatethe cost goods sold and ending inventory for the year using thespecific identification method. Show all your work using the format provided in the text!(Note: Answers do not differ using the periodic inventorysystem)

4. Monitor Company usesthe LIFO method for valuing its ending inventory. The followingfinancial statement information is available for its first year ofoperation:

Income Statement

For the year ended Dec31

Sales 50,0000

Cost of goodssold 23,000

Grossprofit 27,000

Expenses 13,000

Income beforetaxes 14,000

Monitor's ending inventoryusing the LIFO method was $8,200. Monitor's accountant determinedthat, had the company used FIFO, the ending inventory would havebeen $8,500.

a) Determine what the income beforetaxes would have been, had Monitor used the FIFO method ofinventory valuation instead of LIFO.

b) What would be the difference in income taxesbetween LIFO and FIFO, assuming a 30% tax rate?

c) If Monitor wanted to lower the amount of income taxes to be paid, whichmethod would it choose?

taupehamster415

E7-6 Analyzing and Interpreting the Financial Statement Effects of Periodic FIFO, LIFO, and Weighted Average Cost [LO 7-3]

Orion Iron Corp. tracks the number of units purchased and sold throughout each year but applies its inventory costing method at the end of the year, as if it uses a periodic inventory system. Assume its accounting records provided the following information at the end of the annual accounting period, December 31.

Transactions	Units		Unit Cost
a. Inventory, Beginning		350	$	14
For the year:
b. Purchase, April 11		950		12
c. Purchase, June 1		700		15
d. Sale, May 1 (sold for $42 per unit)		350
e. Sale, July 3 (sold for $42 per unit)		610
f. Operating expenses (excluding income tax expense), $18,000

Required:

1.	Calculate the number and cost of goods available for sale.

2.	Calculate the number of units in ending inventory.

3.	Compute the cost of ending inventory and cost of goods sold under (a) FIFO, (b) LIFO, and (c) weighted average cost. (Do not round intermediate calculations. Round your final answers to the nearest dollar amount.)

4.	Prepare an Income Statement that shows the FIFO method, LIFO method and weighted average method.

Which inventory costing method minimizes income taxes?

A.	FIFO
b.	LIFO
C.	Weighted Average Cost

chocolateelephant868

Required information

Problem 6-1A Perpetual: Alternative cost flows LO P1

[The following information applies to the questionsdisplayed below.]

Warnerwoods Company uses a perpetual inventory system. It enteredinto the following purchases and sales transactions forMarch.

Date

Activities

Units Acquired at Cost

Units Sold at Retail

Mar.

Beginning inventory

100

units

@ $50.00 per unit

Mar.

Purchase

400

units

@ $55.00 per unit

Mar.

Sales

420

units

@ $85.00 per unit

Mar.

Purchase

120

units

@ $60.00 per unit

Mar.

Purchase

200

units

@ $62.00 per unit

Mar.

Sales

160

units

@ $95.00 per unit

Totals

820

units

580

units

3. Compute the cost assigned to endinginventory using (a) FIFO, (b) LIFO, (c)weighted average, and (d) specific identification. Forspecific identification, the March 9 sale consisted of 80 unitsfrom beginning inventory and 340 units from the March 5 purchase;the March 29 sale consisted of 40 units from the March 18 purchaseand 120 units from the March 25 purchase.

Complete this questions by entering your answers in thebelow tabs.

Perpetual FIFO

Perpetual LIFO

Weighted Average

Specific Id

Compute the cost assigned to ending inventory using FIFO.

Perpetual FIFO:

Goods Purchased

Cost of Goods Sold

Inventory Balance

Date

# of units

Cost per unit

# of units sold

Cost per unit

Cost of Goods Sold

# of units

Cost per unit

Inventory Balance

March 1

100

$50.00

$5,000.00

March 5

March 9

March 18

March 25

March 29

Totals

$0.00

Complete this questions by entering your answers in thebelow tabs.

Perpetual FIFO

Perpetual LIFO

Weighted Average

Specific Id

Compute the cost assigned to ending inventory using LIFO.

Perpetual LIFO:

Goods Purchased

Cost of Goods Sold

Inventory Balance

Date

# of units

Cost per unit

# of units sold

Cost per unit

Cost of Goods Sold

# of units

Cost per unit

Inventory Balance

March 1

100

$50.00

$5,000.00

March 5

March 9

March 18

March 25

March 29

Totals

$0.00

Perpetual FIFO

Weighted

Complete this questions by entering your answers in thebelow tabs.

Perpetual FIFO

Perpetual LIFO

Weighted Average

Specific Id

Compute the cost assigned to ending inventory using weightedaverage. (Round your average cost per unit to 2 decimalplaces.)

Weighted Average Perpetual:

Goods Purchased

Cost of Goods Sold

Inventory Balance

Date

# of units

Cost per unit

# of units sold

Cost per unit

Cost of Goods Sold

# of units

Cost per unit

Inventory Balance

March 1

100

$50.00

$5,000.00

March 5

Average

March 9

March 18

Average

March 25

March 29

Totals

$0.00

Perpetual LIFO

Compute the cost assigned to ending inventory using specificidentification. For specific identification, the March 9 saleconsisted of 80 units from beginning inventory and 340 units fromthe March 5 purchase; the March 29 sale consisted of 40 units fromthe March 18 purchase and 120 units from the March 25 purchase.

Specific Identification:

Goods Purchased

Cost of Goods Sold

Inventory Balance

Date

# of units

Cost per unit

# of units sold

Cost per unit

Cost of Goods Sold

# of units

Cost per unit

Inventory Balance

March 1

100

$50.00

$5,000.00

March 5

March 9

March 18

March 25

March 29

Totals

$0.00

Weighted Average

bronzegiraffe728

ACCT 203 Lecture Notes - Lecture 6: Inventory Turnover, Gross Margin, Weighted Arithmetic Mean

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