Q32PGA_1 - Horngren'S Financial And Managerial Accounting

Question

Futuristic Electronic Center began October with 65 units of merchandise inventory that cost \(82 each. During October, the store made the following purchases:

Oct. 3                 25 units @ \) 90 each

12                       30 units @ \( 90 each

18                       35 units @ \) 96 each

 

Futuristic uses the periodic inventory system, and the physical count at October 31 indicates that 80 units of merchandise inventory are on hand.

 

Requirements

1. Determine the ending merchandise inventory and cost of goods sold amounts for the October financial statements using the FIFO, LIFO, and weighted-average inventory costing methods.

Step-by-Step Solution

Answer

	Inventory	COGS
FIFO	$7,410	$6,230
LIFO	$6,680	$6,960
Weighted Average	$7,040	$6,600

Step-by-Step Solution Step 1: Using FIFO under a periodic system

$$\begin{gathered} \mathrm{Ending} \mathrm{Inventory} = \mathrm{Oct}18 \mathrm{Purchase} \mathrm{value} +\mathrm{Oct} 12 \mathrm{Purchase} \mathrm{value} \mathrm{for} 15 \mathrm{units} \\ =\left(35 \times \$96 \right)+\left(30 \times \$90\right)+\left(15\times \$90\right) \\ =\$3,360+\$2,700+\$1,350 \\ =\$7,410 \\ \mathrm{Cost} \mathrm{of} \mathrm{goods} \mathrm{sold} = \mathrm{opening} \mathrm{inventory} \mathrm{value}+\mathrm{Total} \mathrm{purchase} \mathrm{value}- \mathrm{Ending} \mathrm{inventory} \mathrm{value} \\ =\left(65 \times \$82 \right)+\left(25\times \$90+30\times \$90+35\times \$96\right)-\$7,410 \\ =\$5,330+\$8,310-\$7,410 \\ =\$6,230 \end{gathered}$$

Step 2: Using LIFO under periodic system

$$\begin{gathered} \mathrm{Ending} \mathrm{inventory} =\mathrm{Opening} \mathrm{inventory} \mathrm{value} + \mathrm{Oct} 3 \mathrm{Purchase} \mathrm{value} \mathrm{for} 15 \mathrm{units} \\ =\left(65 \times \$82\right) +\left(15\times \$90\right) \\ =\$5,330+\$1,350 \\ =\$6,680 \\ \mathrm{Cost} \mathrm{of} \mathrm{goods} \mathrm{Sold} = \mathrm{Opening} \mathrm{inventory} \mathrm{value} +\mathrm{Total} \mathrm{purchase} \mathrm{value} -\mathrm{Ending} \mathrm{inventory} \mathrm{value} \\ =\left(65 \times \$82\right)+\left(25\times \$90+30\times \$90+35\times \$96\right)-\$6,680 \\ =\$5,330+\$8,310-\$6,680 \\ =\$6,960 \end{gathered}$$

Step 3: Using weighted average under periodic system

$$\begin{gathered} \mathrm{Average} \mathrm{cost} = \frac{\mathrm{Opening} \mathrm{inventory} \mathrm{value} +\mathrm{Total} \mathrm{purchase} \mathrm{value}}{\mathrm{Total} \mathrm{units} \mathrm{for} \mathrm{sale}} \\ =\frac{\left(65\times \$82\right)+\left(25\times \$90+30\times \$90+35\times \$96\right)}{65+25+30+35} \\ =\frac{\$5,330+\$8,310}{155} \\ =\$88 \end{gathered}$$

$$\begin{gathered} \mathrm{Ending} \mathrm{inventory} = \mathrm{Ending} \mathrm{units} \times \mathrm{Average} \mathrm{cost} \\ = 80 \times \$88 \\ =\$7,040 \\ \mathrm{Cost} \mathrm{of} \mathrm{goods} \mathrm{sold} =\mathrm{opening} \mathrm{inventory} \mathrm{value} + \mathrm{Total} \mathrm{purchase} \mathrm{value}-\mathrm{Ending} \mathrm{inventory} \mathrm{value} \\ =\left(65\times \$82\right)+\left(25\times \$90+30\times \$90+35\times \$96\right)-\$7,040 \\ =\$5,330+\$8,310-\$7,040 \\ =\$6,600 \end{gathered}$$