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2293 Chapter 7 Textbook Solutions 292

# 2293 Chapter 7 Textbook Solutions 292 - Chapter 7 Textbook...

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Chapter 7 Textbook Solutions 7-17 a) # Units Amount Cost/unit July 1 Beg Inv 6,000 \$60,000 \$10 3 Purchase 3,000 \$36,000 \$12 7 Sale 4,000 15 Sale 2,000 23 Purchase 4,000 \$64,000 \$16 29 Sale 3,500 1. FIFO COGS = (4,000 x \$10) + (2,000 x \$10) + (3,000 x \$12) + (500 x \$16) = \$104,000 2. Moving Average COGS Jul 7 sale = (\$96,000 / (9,000 units) x 4,000 = \$42,667 Jul 15 sale = (\$96,000 - \$42,667) / 5,000) x 2,000 = \$21,333 Jul 29 sale = (\$96,000 - \$42,667 - \$21,333 + \$64,000) / 7,000) x 3,500 = \$48,000 Total moving average COGS = \$42,667 + \$21,333 + 48,000 = \$112,000 b) FIFO cost flow assumption produces the greater net income, since the higher cost goods purchased more recently remain in inventory under FIFO.

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7-18 a) # Units Amount Cost/unit July 1 Beg Inv 6,000 \$60,000 \$10 3 Purchase 3,000 \$36,000 \$12 7 Sale 4,000 15 Sale 2,000 23 Purchase 4,000 \$64,000 \$16 29 Sale 3,500 \$160,000 FIFO COGS = (4,000 x \$10) + (2,000 x \$10) + (3,000 x \$12) + (500 x \$16) = \$104,000 Average COGS = (\$160,000 / (6,000 + 3,000 + 4,000) = \$12.31 \$12.31 x 9,500 units sold = \$116,923 b) FIFO produces the greater net income, since the higher cost goods purchased more recently remain in inventory under FIFO. 7-19 a) Average Cost: Cost Clock No. 423 \$2,150 424 4,500 425 4,400 426 2,400 427 3,720 428 1,930 \$19,100/6 clocks = \$3,183.33 per clock
COGS expense = 4 clocks x \$3,183.33 = \$12,733.33 Ending inventory = 2 clocks x \$3,183.33 = \$ 6,366.67 \$19,100.00 Specific Identification: COGS expense = \$2,150 + 4,400 + 2,400 + 1,930 = \$10,880 Ending inventory = \$4,500 + 3,720 = 8,220 \$19,100 b) Average cost is not an appropriate method to use in this situation as the clocks have such a wide range of costs, from \$1,930 to \$4,500, that the average cost of \$3,183.33 is not representative of most of the inventory. In fact, none of the six clocks have a cost within 10% of this average. Also, as the clocks can be separately identified and are few in number, specific identification is feasible and cost effective. c) In order to use specific identification the physical units must be unique and records must specifically identify the unit and its cost. In general, this is feasible only if the units are high-priced, so that such a tracking system can be justified based on the additional information that the system provides. The chiming clocks are few

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