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(2)LIFO results in the highest Cost of Sales for the statement of profit or loss ($180,400).
PSA5.10Sweet Cookies Ltd in Thailand manufactures and sells a full line of equipment forbaking cookies. Many of these systems are computer-controlled. This information isavailable for Sweet Cookies for 2018. Sweet Cookies uses the LIFO inventory costflow method.(IN THOUSANDS)2018Beginning inventory (finished goods)$139 851.60Ending inventory (finished goods)142 257.40Current assets187 663.00Current liabilities81 019.40Cost of sales328 942.60Sales450 970.80Requireda.Calculate inventory turnover, days in inventory and current ratio for Sweet CookiesLtd.b.Choco Chip is an Australian-based manufacturer of equipment for baking cookies.Choco Chip has an inventory turnover of 5.4 times, days in inventory of 67.6 and acurrent ratio of 0.75:1. You are an investment adviser providing advice to a clientinterested in investing in these companies. Write a short report to highlight thedifferences between the companies in light of the information available in part (a) and(b) of this question.Record closing entries for the periodic and perpetual inventory methods.SOLUTION PROBLEM SET A 5.10Sweet Cookies Ltd2018Inventory turnover ratio$328,942.60($139,851.60+$142,257. 40)÷2=2.3Days in inventory3652.3=158.7 daysCurrent ratio$187,663$81,019.4=2.32:1(b)Of the two companies, Sweet Cookies Ltd has the better current ratio: 2.32:1 versus0.75:1; however, Sweet Cookies’s stronger current ratio is offset by its much lowerinventory turnover and days in inventory. Obviously, I would like more information asto why one company has a much lower current ratio and the other a much lowerinventory turnover. I would also like to compare these figures to the industryaverages.
ADDITIONAL QUESTIONSE5.6SurfsUp Ltd sells a snowboard, Xpert, that is popular with snowboard enthusiasts.Below is information relating to SurfsUp’s purchases of Xpert snowboards duringMay. During the same month, 124 Xpert snowboards were sold. SurfsUp uses aperiodic inventory system.DATEEXPLANATIONUNITSUNIT COSTTOTAL COSTMay1Inventory$ 97$2 52212Purchases1024 59019Purchases1042 91226Purchases1054 200Totals$14224Requireda.Calculate the ending inventory at 31 May using the FIFO and LIFO methods. Provethe amount allocated to cost of sales under each method.b.For both FIFO and LIFO, calculate the sum of ending inventory and cost ofsales. What do you notice about the answers you found for each method?Calculate inventory and cost of sales using FIFO, LIFO and average costs.SOLUTION EXERCISE 5.6 SurfsUp Ltd(a)FIFOBeginning inventory (26 x $97)$2,522Purchases:12 May(45 x $102)$4,59019 May(28 x $104)2,91222 May(40 x $105)4,20011,702Cost of goods available for sale14,224Less:Ending inventory (*15 x $105)1,575Cost of sales$12,649* 15 = 139 – 124PROOFDateUnitsUnit CostTotal Cost1/526$97$2,52212/5451024,59019/5281042,91222/5251052,625124$12,649
LIFOCost of goods available for sale$14,224Less:Ending inventory (15 x $97)1,455Cost of sales$12,769PROOFDateUnitsUnit CostTotal Cost26/540$105$4,20019/5281042,91212/5451024,5901/511971,067124$12,769(b)FIFO $1,575 (ending inventory) + $12,649 (Cost of sales) = $14,224 = Cost of goods available for sale.