# Supporting calculations fifo lifo weighted average

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Supporting calculations:FIFOLIFOWeightedAverageDec. 31, 2010, inventory (600 x \$18).................\$ 10,800\$ 10,800\$ 10,800Purchases1,500 x \$19 = \$28,500700 x \$20 = 14,000400 x \$21 = 8,4003,300 x \$22 = 72,600\$123,500\$123,500\$123,500 Dec. 31, 2011, inventory (6,500 - 5,500 = 1,000 units)FIFO:1,000 x \$22 = \$22,000\$ 22,000LIFO:600 x \$18 = \$10,800400 x \$19 = \$ 7,600\$ 18,400W.A.:(\$134,300/6,500) x 1,000\$ 20,662**Amounts can slightly vary due to differences in rounding.6-37
Chapter 06 - Inventories and Cost of SalesProblem 6-6AA(Concluded)Part 2If Botch, Corp. had been experiencing declining costs in the acquisition of inventory, we would observe the opposite results in our comparisons. Specifically, LIFO would have resulted in a higher ending inventory, lower cost of goods sold, higher gross profit, and higher net income. FIFO would have resulted in a lower ending inventory, higher cost of goods sold, lower gross profit, and lower net income.Part 3Advantages:LIFO: Given the cost trends in the problem, the advantage of using LIFO is that the lower net income will result in a lower tax obligation (tax deferral). Also, LIFO is likely to better match current costs against revenues. FIFO: The advantage of using FIFO is that the inventory figure reported on the balance sheet is likely similar to the current replacement cost.Disadvantages:LIFO: Given the cost trends in the problem, the disadvantage of using LIFO is that the inventory figure, which is also reported on the income statement, will likely be understated in comparison to the current replacement costs. FIFO: The disadvantage of using FIFO is that it will produce a greater tax obligation for the current period as a result of a higher reported net income.6-38
Chapter 06 - Inventories and Cost of SalesProblem 6-7AA(25 minutes)Part 1NILSON COMPANYEstimated InventoryDecember 31At CostAt RetailGoods available for saleBeginning inventory..........................................\$ 471,350\$ 927,150Cost of goods purchased..................................3,276,0306,279,350Goods available for sale....................................\$3,747,380\$7,206,500Sales.....................................................................5,495,700Less: Sales returns..............................................(44,600)Net sales...............................................................5,451,100Ending inventory at retail (\$7,206,500 - \$5,451,100)\$1,755,400Cost-to-retail ratio: \$3,747,380/\$7,206,500 = 0.52 or 52%Ending inventory at cost (\$1,755,400 x 52%)......\$ 912,808Part 2Estimated physical inventory at cost: \$1,675,800 x 52% = \$871,416NILSON COMPANYInventory ShortageDecember 31At CostAt RetailEstimated inventory (from part 1)....................\$ 912,808\$ 1,755,400Physical inventory (given)................................871,4161,675,800Inventory shortage............................................\$ 41,392\$ 79,6006-39
Chapter 06 - Inventories and Cost of SalesProblem 6-8AB(25 minutes)WAYMAN COMPANYEstimated Inventory at March 31At CostAt RetailGoods available for saleInventory, January 1.........................................\$ 300,260Cost of goods purchased.................................939,050Goods available for sale...................................1,239,310Less estimated cost of goods soldSales..................................................................\$1,191,150Less sales returns............................................(9,450)Net sales...........................................................\$1,181,700Estimated cost of goods sold[\$1,181,700 x (1 – 35%)]...............................(768,105)Estimated March 31 inventory............................\$ 471,2056-40
Chapter 06 - Inventories and Cost of SalesPROBLEM SET BProblem 6-1B (40 minutes)1. Compute cost of goods available for sale and units available for saleBeginning inventory.......................15 units @ \$3,000\$ 45,000April 6..........................................35 units @ \$3,500122,500April 17.........................................................................................................................8 units @ \$4,50036,000April 25.........................................................................................................................10 units@ \$4,58045,800Units available.................................68 unitsCost of goods available for sale....\$249,3002. Units in ending inventoryUnits available (from part 1)...........68 unitsLess: Units sold (18 + 30)...............48 unitsEnding Inventory (units).................20 units 3a. FIFO perpetualDateGoods PurchasedCost of Goods SoldInventory BalanceApr. 115 @ \$3,000 = \$ 45,000Apr. 635 @ \$3,500 = \$122,50015 @ \$3,000 35 @ \$3,500 = \$167,500Apr. 915 @ \$3,000 = \$ 45,0003 @ \$3,500 = \$ 10,50032 @ \$3,500 = \$112,000Apr. 178 @ \$4,500 = \$ 36,00032 @ \$3,500