ACT 6692 Mod 10 Assignment Answers

# ACT 6692 Mod 10 Assignment Answers - ACT 6692 Module 10...

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ACT 6692 Module 10 – Assignment (Problems) Solutions 10-1 Inventory methods Flynt Company was formed on December 1, 2006. The following information is available from Flynt 's inventory record for Product X. Units Unit Cost January 1, 2007 (beginning inventory) 1,600 \$18.00 Purchases: January 5, 2007 2,600 \$20.00 January 25, 2007 2,400 \$21.00 February 16, 2007 1,000 \$22.00 March 15, 2007 1,800 \$23.00 A physical inventory on March 31, 2007, shows 2,500 units on hand. Instructions Prepare schedules to compute the ending inventory at March 31, 2007, under each of the following inventory methods: (a) FIFO. (b) LIFO. (c) Weighted-average. Show supporting computations in good form. Solution 10-1 (a) Flynt Company COMPUTATION OF INVENTORY FOR PRODUCT X UNDER FIFO INVENTORY METHOD March 31, 2007 Units Unit Cost Total Cost March 15, 2007 1,800 \$23.00 \$41,400 February 16, 2007 700 22.00 15,400 March 31, 2007, inventory 2,500 \$56,800 (b) Flynt Company COMPUTATION OF INVENTORY FOR PRODUCT X UNDER LIFO INVENTORY METHOD March 31, 2007 Units Unit Cost Total Cost Beginning inventory 1,600 \$18.00 \$28,800 January 5, 2007 (portion) 900 20.00 18,000 March 31, 2007, inventory 2,500 \$46,800

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Solution 10-1 (cont.) (c) Flynt Company COMPUTATION OF INVENTORY FOR PRODUCT X UNDER WEIGHTED-AVERAGE INVENTORY METHOD March 31, 2007 Units Unit Cost Total Cost Beginning inventory 1,600 \$18.00 \$ 28,800 January 5, 2007 2,600 20.00 52,000 January 25, 2007 2,400 21.00 50,400 February 16, 2007 1,000 22.00 22,000 March 15, 2007 1,800 23.00 41,400 9,400 \$194,600 Weighted average cost (\$194,600 ÷ 9,400) \$20.70 March 31, 2007, inventory 2,500 \$20.70 \$51,750
10-2—Perpetual LIFO A record of transactions for the month of May was as follows: Purchases Sales May 1 (balance) 400 @ \$4.20 May 3 300 @ \$7.00 4 1,300 @ \$4.10 6 1,000 @ 7.00 8 800 @ \$4.30 12 900 @ 7.50 14 700 @ \$4.40 18 400 @ 7.50 22 1,200 @ \$4.50 25 1,400 @ 8.00 29 500 @ \$4.55 Assuming that perpetual inventory records are kept in dollars, determine the inventory using LIFO. Solution 10-2 100 @ \$4.20 = \$ 420 200 @ \$4.10 = 820 100 @ \$4.40 = 440 500 @ \$4.55 = 2,275 \$3,955 10-3—Analysis of gross profit During 2007, Hill’s Drug Company experienced a significant increase in the rate of gross profit on sales, compared with the rate it has averaged in recent years. You are asked to determine the most likely reason for this improvement. Support your answer. The following data are from the records of the company: 2007 sales (at an average price of \$40 a unit) were \$1,800,000. 2007 purchases (at an average cost of \$24 a unit) were \$960,000. The company uses the LIFO inventory method and has used it since 1982. Solution 10-3 Five thousand more units were sold than were purchased. This has resulted in the partial liquidation of the beginning LIFO inventory layers. Assuming rising prices, the increased rate of gross profit is most likely due to the matching of old, lower inventory costs against current sales. Computations Units sold: \$1,800,000 ÷ \$40 = 45,000 Units purchased: \$960,000 ÷ \$24 = 40,000

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10-4—Dollar-value LIFO Day Company adopted the dollar-value LIFO inventory method on 12/31/06. On this date, its inventory consisted of the following items. Item Number of Units Cost Per Unit Total Cost X 200 \$2.00 \$ 400 Y 600 4.50 2,700 \$3,100 Additional information: December 31 2007 2008 1. Units of X in inventory 300 400 2. Cost of each X unit \$3.00 \$3.25 3. Units of Y in inventory 800 1,200 4. Cost of each Y unit \$5.50 \$6.00 Instructions (a) Compute the price index for 2007. Round to 2 decimal places.
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