Ehlo Company is a multiproduct firm. Presented below is information concerning one of its products, the Hawkeye.

Date Transaction Quantity Price/Cost

1/1 Beginning inventory 1,000 $12

2/4 Purchase 2,000 18

2/20 Sale 2,500 30

4/2 Purchase 3,000 23

11/4 Sale 2,200 33

Instructions

Compute cost of goods sold, assuming Ehlo uses:

(a) Periodic system, FIFO cost flow. (d) Perpetual system, LIFO cost flow.

(b) Perpetual system, FIFO cost flow. (e) Periodic system, weighted-average

cost flow.

(c) Periodic system, LIFO cost flow. (f) Perpetual system, moving-average

cost flow.

Short Answer

Expert verified

Cost of good sold in situation of part of a, b, c, d, e, and f are $87,100, $87,100, $99,600, $92,600, $91,650 and $87,146 respectively.

Step by step solution

01

Periodic system, FIFO cost flow

EndinginventoryUnits=Totalgoodsavailableforsaleunits-Totalgoodssoldunits=1000+2000+3000-2500+2200=6000-4700=1300Endinginventoryvalue=1300unitspurchasedon2ndApril×Pricecost=1300×$23=$29,900Costofgoodssoldvalue=Totalgoodsavailableforsalevalue-Valueofendinginventory=1000×$12+2000×$18+3000×$23-$29,900=$117,000-29,900=$87,100

02

Perpetual system, FIFO cost flow


Date
Beginning / Purchase
Cost of goods sold
Balance

Units

Cost

Amount

Units

Cost

Amount

Units

Cost

Amount

1/1

1000

$12

$12,000

1000

$12

$12,000

2/4

2000

$18

$36,000

1000

$12

$12000

2000

$18

$36000

3000

$48,000

2/20

1000

$12

$12000

1500

$18

$27,000

500

$18

$9000

4/2

3000

$23

$69000

500

$18

$9000

3000

$23

$69000

3500

$78000

11/4

500

$18

$9000

1700

$23

$39100

1300

$23

$29900

Total

4700

$87100

1300

$3

$29900

The cost of goods sold under FIFO is $87,100.

03

Periodic system, LIFO cost flow

Endinginventoryunits=Totalgoodsavailableforsaleunits-Totalgoodssoldunits=1000+2000+3000-2500+2200=6000-4700=1300Endinginventoryvalue=100unitsofbeginninginventory×cost+300unitsof2ndfebpurchase×cost=1000×$12+300×$18=$17,400Costofgoodssoldvalue=Totalgoodsavailableforsalevalue-Valueofendinginventory=1000×$12+2000×$18+3000×$23-$17,400=$117,000-$17,400=$99,600

04

Perpetual system, LIFO cost flow


Date
Beginning / Purchase
Cost of goods sold
Balance

Units

Cost

Amount

Units

Cost

Amount

Units

Cost

Amount

1/1

1000

$12

$12,000

1000

$12

$12000

2/4

2000

$18

$36,000

1000

$12

$12000

2000

$18

$36000

3000

$48,000

2/20

2000

$18

$36000

500

$12

$6000

500

$12

$6000

4/2

3000

$23

$69000

500

$12

$6000

3000

$23

$69000

3500

$75000

11/4

2200

$23

$50,600

500

$12

$6000

800

$23

$18,400

Total

4700

$92600

1300

$24,400

The cost of goods sold under FIFO is $92,600.

05

Periodic system, weighted average cost flow

Endinginventoryunits=Totalgoodsavailableforsaleunits-Totalgoodssoldunits=1000+2000+3000-2500+2200=6000-4700=1300Averagecost=ValueofallinventoriesTotalinventoriesunits=1000×$12+2000×$18+3000×$231000+2000+3000=$1170006000=$19.5Costofgoodssoldvalue=Totalgoodsavailableforsalevalue-Valueofendinginventory=$117,000-$1300×$19.5=$117,000-$25,350=$91,650

06

Perpetual system, weighted average cost flow



Date

Beginning / Purchase
Cost of goods sold
Balance

Units

Cost

Amount

Units

Cost

Amount

Units

Cost

Amount

1/1

1000

$12

$12,000

1000

$12

$12000

2/4

2000

$18

$36,000

1000

$12

$12000

2000

$18

$36000

3000

$16

$48,000

2/20

2500

$16

$40000

500

$16

$8000

4/2

3000

$23

$69000

500

$16

$8000

3000

$23

$69000

3500

$21.43

$75000

11/4

2200

$21.43

$47,146

1300

$21.43

$27,859

Total

4700

$87,146

1300

$27,859

The cost of goods sold under FIFO is $87,146.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Jane Yoakam, president of Estefan Co., recently read an article that claimed that at least 100 of the country’s largest 500 companies were either adopting or considering adopting the last-in, first-out (LIFO) method for valuing inventories. The article stated that the firms were switching to LIFO to

(1) neutralize the effect of inflation in their financial statements,

(2) eliminate inventory profits, and (3) reduce income taxes. Ms. Yoakam wonders if the switch would benefit her company.

Estefan currently uses the first-in, first-out (FIFO) method of inventory valuation in its periodic inventory system. The company has a high inventory turnover rate, and inventories represent a significant proportion of the assets.

Ms. Yoakam has been told that the LIFO system is more costly to operate and will provide little benefit to companies with high turnover. She intends to use the inventory method that is best for the company in the long run rather than selecting a method just because it is the current fad.

Instructions

(a) Explain to Ms. Yoakam what “inventory profits” are and how the LIFO method of inventory valuation could reduce them.

(b) Explain to Ms. Yoakam the conditions that must exist for Estefan Co. to receive tax benefits from a switch to the LIFO method.

Clay Mattews, an inventory control specialist, is interested in better understanding the accounting for inventories. Although Clay understands the more sophisticated computer inventory control systems, he has littleknowledge of how inventory cost is determined. In studying the records of Strider Enterprises, which sells normal brand-namegoods from its own store and on consignment through Chavez Inc., he asks you to answer the following questions.

Instructions

(a) Should Strider Enterprises include in its inventory normal brand-name goods purchased from its suppliers but not yetreceived if the terms of purchase are f.o.b. shipping point (manufacturer’s plant)? Why?

(b) Should Strider Enterprises include freight-in expenditures as an inventory cost? Why?

(c) If Strider Enterprises purchases its goods on terms 2/10, net 30, should the purchases be recorded gross or net? Why?

(d) What are products on consignment? How should they be reported in the financial statements?

Case 3: The Kroger Company

The Kroger Company reported the following data in its annual report (in millions).

January 31, February 1, February 2,

2015 2014 2013

Net sales \(108,465 \)98,375 $96,619

Cost of sales (using LIFO) 85,512 78,138 76,726

Year-end inventories using FIFO 6,933 6,801 6,244

Year-end inventories using LIFO 5,688 5,651 5,146

Instructions

(a) Compute Kroger’s inventory turnovers for fiscal years ending January 31, 2015, and February 1, 2014, using:

(1) Cost of sales and LIFO inventory.

(2) Cost of sales and FIFO inventory.

(b) Some firms calculate inventory turnover using sales rather than cost of goods sold in the numerator. Calculate Kroger’s fiscal years ending January 31, 2015, and February 1, 2014, turnover, using:

(1) Sales and LIFO inventory.

(2) Sales and FIFO inventory.

(c) State which method you would choose to evaluate Kroger’s performance. Justify your choice.

Presented below is information related to Blowfish radios for the Hootie Company for the month of July.

Units Unit Total Units Selling Total

InCostSoldPrice

Date Transaction

July 1 Balance 100 \(4.10 \) 410

6 Purchase 800 4.20 3,360

7 Sale 300\(7.00 \) 2,100

10 Sale 300 7.30 2,190

12 Purchase 400 4.50 1,800

15 Sale 200 7.40 1,480

18 Purchase 300 4.60 1,380

22 Sale 400 7.40 2,960

25 Purchase 500 4.58 2,290

30 Sale 200 7.50 1,500

Totals 2,100\(9,240 1,400\)10,230

Instructions

(a) Assuming that the periodic inventory method is used, compute the inventory cost at July 31 under each of the following cost flow assumptions.

(1) FIFO.

(2) LIFO.

(3) Weighted-average.

(b) Answer the following questions.

(1) Which of the methods used above will yield the lowest figure for gross profit for the income statement? Explain why.

(2) Which of the methods used above will yield the lowest figure for ending inventory for the balance sheet? Explain why.

Question:Johnny Football Shop began operations on January 2, 2017. The following stock record card for footballs was taken from the records at the end of the year.

Units Unit Invoice Gross Invoice

Date Voucher Terms Received Cost Amount

1/15 10624 Net 30 50 \(20 \)1,000

3/15 11437 1/5, net 30 65 16 1,040

6/20 21332 1/10, net 30 90 15 1,350

9/12 27644 1/10, net 30 84 12 1,008

11/24 31269 1/10, net 30 76 11 836

Totals 365 $5,234

A physical inventory on December 31, 2017, reveals that 100 footballs were in stock. The bookkeeper informs you that all thediscounts were taken. Assume that Johnny Football Shop uses the invoice price less discount for recording purchases.

Instructions

(a) Compute the December 31, 2017, inventory using the FIFO method.

(b) Compute the 2017 cost of goods sold using the LIFO method.

(c) What method would you recommend to the owner to minimize income taxes in 2017, using the inventory informationfor footballs as a guide?

See all solutions

Recommended explanations on Business Studies Textbooks

View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free