The use of lifo versus fifo for cruz markedly impacts

This preview shows page 22 - 28 out of 41 pages.

The use of LIFO versus FIFO for Cruz markedly impacts the ratios computed. Specifically, LIFO makes Cruz appear worse in comparison to FIFO numbers on the current ratio (1.1 vs. 1.5) but better on inventory turnover (5.5 vs. 3.4) and days’ sales in inventory (78.9 vs. 132.7). These results can be generalized. That is, when costs are rising and quantities are stable or rising, the FIFO inventory exceeds LIFO inventory. This suggests that (relative to FIFO) the LIFO current ratio is understated, the LIFO inventory turnover is overstated, and the days’ sales in inventory is understated. Overall, users prefer the FIFO numbers for these ratios because they are considered more representative of current replacement costs for inventory.
Exercise 5-9A(20 minutes)Ending Cost ofInventoryGoods Solda.Specific Identification(100 x $5.00) + (70 x $5.60) + (20 x $6).....................$1,012$3,020 - $1,012 ..........................................................$2,008b.Weighted Average($3,020 / 540 units = $5.593* average cost per unit)190 x $5.593................................................................$1,063*350 x $5.593................................................................$1,958*c. FIFO(100 x $5.00) + (90 x $5.60)........................................$1,004(140 x $6.00) + (210 x $5.60).....................................$2,016d. LIFO(140 x $6.00) + (50 x $5.60)........................................$1,120(100 x $5.00) + (250 x $5.60)......................................$1,900*rounded
Exercise 5-10A(20 minutes)Cost of goods available for sale= $18,750(given in Exercise 5-3)Ending Cost ofInventoryGoods Solda. FIFO(100 x $25) + (120 x $20)............................................$4,900(200 x $10) + (350 x $15) + (330 x $20).....................$13,850b. LIFO(200 x $10) + (20 x $15)...............................................$2,300(100 x $25) + (450 x $20) + (330 x $15).....................$16,450c.FIFO Gross MarginSales revenue (880 units sold x $40 selling price)...........$35,200Less: FIFO cost of goods sold..........................................13,850Gross margin......................................................................$21,350LIFO Gross MarginSales revenue (880 units sold x $40 selling price)...........$35,200Less: LIFO cost of goods sold..........................................16,450Gross margin......................................................................$18,750
Exercise 5-11A(20 minutes)Cost ofGoods Sold
Exercise 5-12A(20 minutes)Cost of Goods Sold
Exercise 5-13B(20 minutes)At CostAt RetailGoods available for saleBeginning inventory..............................................$ 63,800$128,400Cost of goods purchased......................................115,060196,800Goods available for sale........................................$178,860325,200Deduct net sales at retail..........................................260,000Ending inventory at retail.........................................$ 65,200Cost ratio: ($178,860/$325,200) = 0.55........................Ending inventory at cost ($65,200 x 55%)...............$ 35,860Exercise 5-14B(20 minutes)Goods available for saleInventory, January 1..............................................$ 225,000Net cost of goods purchased*...............................802,250Goods available for sale........................................1,027,250Less estimated cost of goods soldNet sales.................................................................$1,000,000Estimated cost of goods sold[$1,000,000 x (1 – 30%)]....................................(700,000)Estimated March 31 inventory.................................$ 327,250*$795,000 - $11,550 + $18,800 = $802,250
PROBLEM SET AProblem 5-1A (40 minutes)

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture