Chapter 7: Reporting and Interpreting Inventories and Cost of Goods Sold
October 15, 2008
1. What are the three inventory accounts for a manufacturing company?
Raw Materials, Works-in-Progress, Finished Goods
2. A New York designer that makes high-end custom clothing and needs to know the exact cost of each dress would likely use which inventory costing method?
a. FIFO
b. LIFO
c. Weighted Average
d. Specific Identification
3. Cost of Goods Available for Sales= _Beg. Inventory__ + __Purchases______.
4. Calculate the Cost of Goods Sold under (a) FIFO (b) LIFO and (c) Weighted average based on the following information. Assume a PERIODIC inventory system.
Beginning Inventory:2,000 units @$20/each
Sale #1 :1,000 units
Purchase #1 ;6,000 units @ $22/each
Sale #2 :3,000 units
Purchase #2 :8,000 units @$25/each
Sale #3 :5,000 units
Total Units Sold 9,000
Total Units in EI7,000
Total Units available for sale 16,000
Total Cost of Goods Available for sale$372,000
**These are helpful totals to start with!!!!**
(a) FIFOSell oldest inventory first.
2,000 units @ $20= $40,000
6,000 units @ $22=$132,000
1,000 units @ $25= $25,000
9,000 units sold=$197,000 COGS!
(b) LIFOSell newest inventory first. (most recently purchased)
8,000 units @ $25=$200,000
1,000 units @ $22= $22,000
9,000 units sold=$222,000 COGS
c) Weighted AverageAn average cost/unit
Total Cost of Goods Available for Sale$372,000 = $23.75/unit
Total Units Available for Sale 16,000
=$23.75 * 9,000 units sold= $213,750 COGS
5. Using the same information in question #4, calculate the Ending Inventory using (a) FIFO, (b) LIFO, and (c) Weighted average.
(a) FIFOYou have sold the oldest 9,000 units so you still have the newest 7,000 units.
7,000 units @ $25=$175,000 Ending Inventory
(only units from the last purchase were unsold)
(b) LIFOYou sold the newest 9,000 units (from most recent purchases) so you still have the oldest 7,000 units.
5,000 @ $22=$110,000
2,000 @ $20= $40,000
7,000 units left$150,000 Ending Inventory
(c) Weighted Average
Use the same cost per unit ($23.75)
$23.75 x 7,000 units left= $166,250 Ending Inventory