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Chapter 6: 7SE_1 (page 359)

Question:Refer to Short Exercises S6-4 through S6-6. After completing those exercises, answer the following questions:

Requirements

1. Which inventory costing method produced the lowest cost of goods sold?

Short Answer

Expert verified

FIFO method produces the lowest Cost of goods sold.

Step by step solution

01

Step-by-Step-SolutionStep1: COGS computed under different conditions

The inventory methods used in the previous exercises used inventory methods namely – FIFO, LIFO, and Weighted Average Cost

The COGS under each of the case are as follow –

FIFO:$2,000

LIFO:$2,312

Weighted Average:$2,108

02

Lowest COGS

As can be seen from the above figures, the lowest COGS amounts to$2,000. This lowest cost of goods sold is the result of the FIFO method which values the issued stocks on the historical prices.

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Most popular questions from this chapter

Steel It began January with 55 units of iron inventory that cost \(35 each. During January, the company completed the following inventory transactions:

Units Unit Cost Unit Sales Price

Jan. 3 Sale 45 \) 83

8 Purchase 75 $ 52

21 Sale 70 85

30 Purchase 10 55

Requirements

1. Prepare a perpetual inventory record for the merchandise inventory using theFIFO inventory costing method.

Question:Assume that Toys Galore store bought and sold a line of dolls during December as follows:

Dec. 1 Beginning merchandise inventory 13 units @ \( 9 each

8 Sale 8 units @ \) 22 each

14 Purchase 16 units @ \( 14 each

21 Sale 14 units @ \) 22 each

Requirements

4. Which method results in a higher cost of ending merchandise inventory?

Steel It began January with 55 units of iron inventory that cost \(35 each. During January, the company completed the following inventory transactions:

Units Unit Cost Unit Sales Price

Jan. 3 Sale 45 \) 83

8 Purchase 75 $ 52

21 Sale 70 85

30 Purchase 10 55

Requirements

2. Prepare a perpetual inventory record for the merchandise inventory using theLIFO inventory costing method.

When does an inventory error cancel out, and why?

Assume that AB Tire Store completed the following perpetual inventory transactions for a line of tires:

May 1 Beginning merchandise inventory 16 tires @ \( 65 each

11 Purchase 10 tires @ \) 78 each

23 Sale 12 tires @ \( 88 each

26 Purchase 14 tires @ \) 80 each

29 Sale 18 tires @ $ 88 each

Requirements

3. Compute cost of goods sold and gross profit using the weighted-average inventory costing method. (Round weighted-average cost per unit to the nearest cent and all other amounts to the nearest dollar.)
See all solutions

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