# 3 which cost flow method fifo or lifo is more likely

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(3) Which cost flow method (FIFO or LIFO) is more likely to approximate the actual phys- ical flow of goods? Why? (4) How much more cash will be available for management under LIFO than under FIFO? Why? (5) Will gross profit under the average-cost method be higher or lower than FIFO? Than LIFO? ( Note : It is not necessary to quantify your answer.) P6-5B You are provided with the following information for Web Inc. for the month ended June 30, 2010.Web uses the periodic method for inventory. Unit Cost or Date Description Quantity Selling Price June 1 Beginning inventory 40 \$40 June 4 Purchase 135 44 June 10 Sale 110 70 June 11 Sale return 15 70 June 18 Purchase 55 46 June 18 Purchase return 10 46 June 25 Sale 65 75 June 28 Purchase 30 50 (b)(2) Cost of goods sold: FIFO \$23,400 LIFO \$24,900 Average \$24,160 Compute ending inventory, prepare income statements, and answer questions using FIFO and LIFO. (SO 2, 3) (a) Gross profit: FIFO \$311,600 LIFO \$301,000 Calculate ending inventory, cost of goods sold, gross profit, and gross profit rate under periodic method; compare results. (SO 2, 3) PDF Watermark Remover DEMO : Purchase from to remove the watermark

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Instructions (a) Calculate (i) ending inventory, (ii) cost of goods sold, (iii) gross profit, and (iv) gross profit rate under each of the following methods. (1) LIFO. (2) FIFO. (3) Average-cost. (b) Compare results for the three cost flow assumptions. P6-6B You are provided with the following information for Mondello Inc. Mondello Inc. uses the periodic method of accounting for its inventory transactions. March 1 Beginning inventory 2,000 liters at a cost of 60¢ per liter. March 3 Purchased 2,500 liters at a cost of 65¢ per liter. March 5 Sold 2,200 liters for \$1.05 per liter. March 10 Purchased 4,000 liters at a cost of 72¢ per liter. March 20 Purchased 2,500 liters at a cost of 80¢ per liter. March 30 Sold 5,000 liters for \$1.25 per liter. Instructions (a) Prepare partial income statements through gross profit, and calculate the value of ending in- ventory that would be reported on the balance sheet, under each of the following cost flow assumptions. Round ending Inventory and cost of goods sold to the nearest dollar. (1) Specific identification method assuming: (i) the March 5 sale consisted of 1,100 liters from the March 1 beginning inventory and 1,100 liters from the March 3 purchase; and (ii) the March 30 sale consisted of the following number of units sold from beginning in- ventory and each purchase: 450 liters from March 1; 550 liters from March 3; 2,900 liters from March 10; 1,100 liters from March 20. (2) FIFO. (3) LIFO. (b) How can companies use a cost flow method to justify price increases? Which cost flow method would best support an argument to increase prices? P6-7B The management of Clare Co. asks your help in determining the comparative effects of the FIFO and LIFO inventory cost flow methods. For 2010, the accounting records show the fol- lowing data.
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