Question Description
Exercise5-3A Allocating product cost between cost of goods sold and ending inventory:multiple purchases
SuggsCompany sells coffee makers used in business offices. Its beginning inventory of coffee makers was400 units at $50 per unit. During theyear, Suggs made two batch purchases of coffee makers. The first was a 500-unit purchase at $55 per unit;the second was a 600-unit purchase a $58 per unit. During the period, Suggs sold 1,200 coffeemakers.
Required
Determinethe amount of product costs that would be allocated to cost of goods sold andending inventory, assuming that Suggs uses
a. FIFO
b. LIFO
c.Weighted average
Exercise5-4A Effect of inventory cost flow (FIFO, LIFO, and weighted average) on grossmargin.
Thefollowing information pertains to Baxter Company for 2013:
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Beginning inventory 90 units @ $15 Units purchased 320 units @$19 |
Endinginventory consisted of 40 units. Baxtersold 370 units at $30 each. Allpurchases and sales were made with cash.
Require
a.Compute the gross margin for Baxter Company using the following cost flowassumptions:
(1) FIFO,(2) LIFO, and (3) weighted average.
b. Whatis the dollar amount of difference in net income between using FIFO versusLIFO?
c. Determine the cash flow from operatingactivities, using each of the three cost flow assumptions listed in Requirementa. Ignore the effect of incometaxes. Explain why these cash flows haveno differences.
Exercise5-5A Effect of inventory cost flow on ending inventory balance and gross margin
DuganSales had the following transactions for jackets in 2013, its first year ofoperations:
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Jan. 20 Purchased 80 units @ $15 = $ 1,200 Apr. 21 Purchased 420 units @ $16 = 6,720 July. 25 Purchased 250 units @$20 = 5,000 Sept. 19 Purchased 150 units @ $22 = 3,300 |
Duringthe year, Dugan Sales sold 830 jackets for $40 each.
Required
a. Computethe amount of ending inventory Dugan would report on the balance sheet,assuming the following cost flow assumptions: (1) FIFO, (2) LIFO, and (3)weighted average.
b.Record the above transactions in general journal form and post to T-accountsusing (1) FIFO, (2) LIFO, and (3) weighted average. Use a separate set of journal entries andT-accounts for each method. Assume alltransactions are cash transactions.
c.Compute the difference in gross margin between the FIFO and LIFO cost flowassumptions.
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