(Solved): Chrome File Edit View History Bookmarks People Window Help 1 @ 57% O EA Tue 1:57:20 AM Nupur Kaur Q O E • O ON Netflix H x BS Forum

Chrome File Edit View History Bookmarks People Window Help 1 @ 57% O EA Tue 1:57:20 AM Nupur Kaur Q O E • O ON Netflix H x BS Forum: Yo x p Pinterest x = Peoria Ernie x a Spinbot. x Cengage x Cengage x D Chapter 8 x A Facebook x XC Accountin x Dypot – C 0 0 ezto.mheducation.comhmtpx H Apps D Non Stop Bhangr. N Netflix O Learn Kirtan : Deh S. S online books in course : F17 Planeta. is CengageNowv2 A.O(1) Old Bollywood S. IU. 1000 points >> Other Bookmarks Aita Ski Company’s inventory records contained the following information regarding its latest ski model. The company uses a periodic inventory system. Beginning inventory, January 1, 2016 1350 units @ $100 each Purchases: January 15 2,800 units @ $115 each January 21 2,600 units @ $120 each Sales: January 5 1,300 units @ $140 each January 22 1,700 units @ $150 each January 29 1,150 units @ $155 each Ending inventory, January 31, 2016 2,600 units Required: 1.1 Which method, FIFO or LIFO, will result in the highest cost of goods sold figure for January 2016? LIFO FIFO 1.2 which method will result in the highest ending inventory balance? LIFO FIFO 2. Compute cost of goods sold for January and the ending inventory using both the FIFO and LIFO methods. in DS1 E ® CEO A womx)

Expert Answer

Solution:

First of all we need to understand what is Periodic Inventory System.

Periodic Inventory System

– It is a system of inventory in which inventories are updated on a periodic basis.

– Periodic basis may be monthly, quarterly, weekly, half yearly or yearly. In this system, inventories are not kept up to date.

– In this system, inventories are not updated on each transaction (i.e. on each purchase or sale).

— Correct answer is LIFO method

In LIFO method the material purchased or received last to be issued first. It means cost of goods sold under LIFO method consists the units purchased recently. The cost of goods sold calculated by using latest pricing. Hence, LIFO method will result in the highest cost of goods sold figure for January 2016.

1.2 – Correct answer is FIFO method

Under FIFO method, the oldest purchased units are issued first. So the ending inventory consists the units recently purchased. So the value of recently purchased material are generally higher than the oldest stock. That is the reason FIFO method will result in the highest ending inventory balance.

Calculation of Cost of Goods sold and Ending Inventory using FIFO

FIFO	Cost of Goods Available for sale			Cost of Goods Sold – Periodic FIFO			Ending Inventory – Periodic FIFO
FIFO	Units	$/Unit	$$	Units	$/Unit	$$	Units	$/Unit	$$
Beg. Inventory Jan.1	1350	$100	$135,000	1350	$100	$135,000
Jan.15 purchases	2800	$115	$322,000	2800	$115	$322,000
Jan.21 purchases	2600	$120	$312,000				2600	$120	$312,000

Total	6750		$769,000	4150		$457,000	2600		$312,000

Note –FIFO Method (Periodic System)

– The materials are issued in the order in which they are purchased

– Material received first to be issued first

– Closing Stock is valued at the recent purchase price

Calculation of Cost of Goods sold and Ending Inventory using LIFO

LIFO	Cost of Goods Available for sale			Cost of Goods Sold – Periodic LIFO			Ending Inventory – Periodic LIFO
LIFO	Units	$/Unit	$$	Units	$/Unit	$$	Units	$/Unit	$$
Beg. Inventory Jan.1	1350	$100	$135,000				1350	$100	$135,000
Jan.15 purchases	2800	$115	$322,000	1550	$115	$178,250	1250	$115	$143,750
Jan.21 purchases	2600	$120	$312,000	2600	$120	$312,000

Total	6750		$769,000	4150		$490,250	2600		$278,750

Note – LIFO Method (Periodic System)

– The prices of last received batch (lot) are used for pricing the issues.

– Material purchased last to be issued first

– Closing stock is valued at the oldest purchase price.

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