2 LIFO results in the highest Cost of Sales for the statement of profit or loss

2 lifo results in the highest cost of sales for the

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(2) LIFO results in the highest Cost of Sales for the statement of profit or loss ($180,400).
PSA5.10 Sweet Cookies Ltd in Thailand manufactures and sells a full line of equipment for baking cookies. Many of these systems are computer-controlled. This information is available for Sweet Cookies for 2018. Sweet Cookies uses the LIFO inventory cost flow method. (IN THOUSANDS) 2018 Beginning inventory (finished goods) $139 851.60 Ending inventory (finished goods) 142 257.40 Current assets 187 663.00 Current liabilities 81 019.40 Cost of sales 328 942.60 Sales 450 970.80 Required a. Calculate inventory turnover, days in inventory and current ratio for Sweet Cookies Ltd. 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 a current ratio of 0.75:1. You are an investment adviser providing advice to a client interested in investing in these companies. Write a short report to highlight the differences 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 5.10 Sweet Cookies Ltd 2018 Inventory turnover ratio $328,942.60 ( $139,851.60 + $142,257. 40 ) ÷ 2 = 2.3 Days in inventory 365 2.3 = 158.7 days Current 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 versus 0.75:1; however, Sweet Cookies’s stronger current ratio is offset by its much lower inventory turnover and days in inventory. Obviously, I would like more information as to why one company has a much lower current ratio and the other a much lower inventory turnover. I would also like to compare these figures to the industry averages.
ADDITIONAL QUESTIONS E5.6 SurfsUp Ltd sells a snowboard, Xpert, that is popular with snowboard enthusiasts. Below is information relating to SurfsUp’s purchases of Xpert snowboards during May. During the same month, 124 Xpert snowboards were sold. SurfsUp uses a periodic inventory system. DATE EXPLANATION UNITS UNIT COST TOTAL COST May1 Inventory $ 97 $2 522 12 Purchases 102 4 590 19 Purchases 104 2 912 26 Purchases 105 4 200 Totals $14 224 Required a. Calculate the ending inventory at 31 May using the FIFO and LIFO methods. Prove the amount allocated to cost of sales under each method. b. For both FIFO and LIFO, calculate the sum of ending inventory and cost of sales. 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) FIFO Beginning inventory (26 x $97) $2,522 Purchases: 12 May (45 x $102) $4,590 19 May (28 x $104) 2,912 22 May (40 x $105) 4,200 11,702 Cost of goods available for sale 14,224 Less: Ending inventory (*15 x $105) 1,575 Cost of sales $12,649 * 15 = 139 – 124 PROOF Date Units Unit Cost Total Cost 1/5 26 $97 $2,522 12/5 45 102 4,590 19/5 28 104 2,912 22/5 25 105 2,625 124 $12,649
LIFO Cost of goods available for sale $14,224 Less : Ending inventory (15 x $97) 1,455 Cost of sales $12,769 PROOF Date Units Unit Cost Total Cost 26/5 40 $105 $4,200 19/5 28 104 2,912 12/5 45 102 4,590 1/5 11 97 1,067 124 $12,769 (b) FIFO $1,575 (ending inventory) + $12,649 (Cost of sales) = $14,224 = Cost of goods available for sale.

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