FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
5th Edition
ISBN: 9781260847826
Author: SPICELAND
Publisher: INTER MCG
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Chapter 6, Problem 1AE

a)

To determine

Calculate the cost of ending inventory and cost of goods sold using FIFO method.

a)

Expert Solution
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Explanation of Solution

Perpetual Inventory System:

Perpetual Inventory System refers to the inventory system that maintains the detailed records of every inventory transactions related to purchases, and sales on a continuous basis. It shows the exact on-hand-inventory at any point of time.

First-in-First-Out:

In First-in-First-Out method, the costs of the initially purchased items are considered as cost of goods sold, for the items which are sold first. The value of the ending inventory consists of the recent purchased items.

Ending Inventory:

It represents the quantity and price of the goods unsold and laying at the store at the end of a particular period.

Calculate the cost of ending inventory:

FINANCIAL ACCOUNTING, Chapter 6, Problem 1AE , additional homework tip  1

Table 1

Note:

  • The ending inventory is 1,500 units.
  • In FIFO method the ending inventory comprises of the inventory purchased last, because the inventory purchased first were sold first.
  • Therefore, the ending inventory of 1,500 units from October 22nd purchases.

Cost of goods sold:

Cost of goods sold is the accumulate total of all direct cost incurred in manufacturing the goods or the products which has been sold during a period. Cost of goods sold involves direct material, direct labor, and manufacturing overheads.

Determine the cost of goods sold:

FINANCIAL ACCOUNTING, Chapter 6, Problem 1AE , additional homework tip  2

Table 2

Note:

  • 8,500 units are sold.
  • As it is FIFO method, the earlier purchased items will be sold first.
  • Hence, the cost of goods sold will be the earlier purchased items.
Conclusion

Therefore, the cost of Ending Inventory, and cost of goods sold in the FIFO is $15,900 and $88,480, respectively.

b)

To determine

Calculate the cost of ending inventory and cost of goods sold using LIFO method.

b)

Expert Solution
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Explanation of Solution

Last-in-Last-Out:

In Last-in-First-Out method, the costs of last purchased items are considered as the cost of goods sold, for the items which are sold first. The value of the closing stock consists of the initial purchased items.

Calculate the cost of ending inventory:

FINANCIAL ACCOUNTING, Chapter 6, Problem 1AE , additional homework tip  3

Table 3

Note:

  • The ending inventory is 1,500 units.
  • In LIFO method, the ending inventory comprises of the inventory purchased first, because the inventory purchased last were sold first.
  • Therefore, the ending inventory of 1,500 units is from the beginning inventory and from March 12 purchases.

Cost of goods sold:

Cost of goods sold is the accumulate total of all direct cost incurred in manufacturing the goods or the products which has been sold during a period. Cost of goods sold involves direct material, direct labor, and manufacturing overheads.

Determine the cost of goods sold:

FINANCIAL ACCOUNTING, Chapter 6, Problem 1AE , additional homework tip  4

Table 4

Note:

  • 8,500 units are sold.
  • As it is LIFO method, the recent purchased items will be sold first.
  • Hence, the cost of goods sold will be the recent purchased items.
Conclusion

Therefore, the cost of Ending Inventory, and cost of goods sold in the LIFO is $15,390 and $88,990, respectively.

c)

To determine

Calculate the cost of ending inventory and cost of goods sold using weighted-average method.

c)

Expert Solution
Check Mark

Explanation of Solution

Weighted-average cost method:

Under Weighted average cost method, the company calculates a new average cost after every purchase is made. It is determined by dividing the cost of goods available for sale by the units on hand.

Calculate the cost of ending inventory:

Cost of Ending inventory=(Number of units in Ending inventory ×Weighted-average cost per unit)=1,500 units × $10.438=$15,657

Working note:

Calculate the Weighted-average cost:

Weighted-averageCost}=Total Cost of Goods Available For SaleTotal number of units Available for Sale=$104,38010,000 Units=$10.438

Calculate the Cost of Goods Sold.

Cost of Goods Sold=(Number of units Sold ×Weightedaverage cost per unit)=8,500 units×$10.438=$88,723

Conclusion

Therefore, the cost of Ending Inventory, and cost of goods sold in the weighted-average method is $15,657 and $88,723, respectively.

d)

To determine

Calculate gross profit for each method and calculate gross profit if the unit costs were different.

d)

Expert Solution
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Explanation of Solution

Gross profit is the difference between the sales and the cost of goods sold.

Calculate the gross profit:

Determine the amount of sales revenue:

Sales Revenue=Number of Units Sold × Sales Price Per Unit=8,500 units× $30=$255,000

Calculate gross profit under FIFO method:

FINANCIAL ACCOUNTING, Chapter 6, Problem 1AE , additional homework tip  5

Table 5

Calculate gross profit under LIFO method:

FINANCIAL ACCOUNTING, Chapter 6, Problem 1AE , additional homework tip  6

Table 6

Calculate gross profit under weighted-average method:

FINANCIAL ACCOUNTING, Chapter 6, Problem 1AE , additional homework tip  7

Table 7

Calculate cost of goods sold under each method if the unit costs were different as follows:

Cost of goods sold under FIFO method:

FINANCIAL ACCOUNTING, Chapter 6, Problem 1AE , additional homework tip  8

Table 8

Cost of goods sold under LIFO method:

FINANCIAL ACCOUNTING, Chapter 6, Problem 1AE , additional homework tip  9

Table 9

Cost of goods sold under Weighted-average method:

Calculate the Weighted-average cost:

Weighted-averageCost}=Total Cost of Goods Available For SaleTotal number of units Available for Sale=$101,01010,000 Units=$10.101

Calculate the Cost of Goods Sold.

Cost of Goods Sold=(Number of units Sold ×Weightedaverage cost per unit)=8,500 units×$10.101=$85,858.5

Calculate the total Cost and units of Goods Available for Sales:

FINANCIAL ACCOUNTING, Chapter 6, Problem 1AE , additional homework tip  10

Table 10

Calculate gross profit under each method if the unit costs were different as follows:

Calculate gross profit under FIFO method:

FINANCIAL ACCOUNTING, Chapter 6, Problem 1AE , additional homework tip  11

Table 11

Calculate gross profit under LIFO method:

FINANCIAL ACCOUNTING, Chapter 6, Problem 1AE , additional homework tip  12

Table 12

Calculate gross profit under weighted-average method:

FINANCIAL ACCOUNTING, Chapter 6, Problem 1AE , additional homework tip  13

Table 13

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Chapter 6 Solutions

FINANCIAL ACCOUNTING

Ch. 6 - 11. Maxwell Corporation has the following...Ch. 6 - Prob. 12SSQCh. 6 - Prob. 13SSQCh. 6 - Prob. 14SSQCh. 6 - Prob. 15SSQCh. 6 - Prob. 1AECh. 6 - Prob. 2AECh. 6 - Prob. 1RQCh. 6 - Prob. 2RQCh. 6 - Prob. 3RQCh. 6 - Prob. 4RQCh. 6 - Prob. 5RQCh. 6 - 6. What is a multiple-step income statement? What...Ch. 6 - Prob. 7RQCh. 6 - Prob. 8RQCh. 6 - Prob. 9RQCh. 6 - Prob. 10RQCh. 6 - Prob. 11RQCh. 6 - 12. Explain how LIFO generally results in lower...Ch. 6 - Prob. 13RQCh. 6 - Prob. 14RQCh. 6 - Prob. 15RQCh. 6 - Prob. 16RQCh. 6 - Prob. 17RQCh. 6 - Prob. 18RQCh. 6 - Prob. 19RQCh. 6 - Prob. 20RQCh. 6 - Prob. 21RQCh. 6 - Prob. 22RQCh. 6 - Prob. 23RQCh. 6 - Prob. 24RQCh. 6 - Prob. 1BECh. 6 - Prob. 2BECh. 6 - Prob. 3BECh. 6 - Prob. 4BECh. 6 - Prob. 5BECh. 6 - Prob. 6BECh. 6 - Prob. 7BECh. 6 - Prob. 8BECh. 6 - Prob. 9BECh. 6 - Prob. 10BECh. 6 - Prob. 11BECh. 6 - Prob. 12BECh. 6 - Prob. 13BECh. 6 - Prob. 14BECh. 6 - Prob. 15BECh. 6 - Prob. 16BECh. 6 - BE6-17 Refer to the information in BE6-10, but now...Ch. 6 - Prob. 18BECh. 6 - Prob. 19BECh. 6 - BE6–20 Refer to the information in BE6–13, but now...Ch. 6 - Prob. 21BECh. 6 - Prob. 22BECh. 6 - Prob. 1ECh. 6 - Prob. 2ECh. 6 - Prepare a multiple-step income statement and...Ch. 6 - Prob. 4ECh. 6 - Prob. 5ECh. 6 - E6-6 Bingerton Industries began the year with...Ch. 6 - Prob. 7ECh. 6 - Prob. 8ECh. 6 - Prob. 9ECh. 6 - Prob. 10ECh. 6 - Prob. 11ECh. 6 - Prob. 12ECh. 6 - Calculate inventory using lower of cost and net...Ch. 6 - Calculate inventory using lower of cost and net...Ch. 6 - Prob. 15ECh. 6 - Prob. 16ECh. 6 - Prob. 17ECh. 6 - Prob. 18ECh. 6 - Prob. 19ECh. 6 - Prob. 20ECh. 6 - Prob. 21ECh. 6 - Prob. 1PACh. 6 - Prob. 2PACh. 6 - Prob. 3PACh. 6 - Prob. 4PACh. 6 - Prob. 5PACh. 6 - Prob. 6PACh. 6 - Prepare a multiple-step Income statement and...Ch. 6 - P6-8A Wawa Food Markets is a convenience store...Ch. 6 - Prob. 9PACh. 6 - Correct inventory Understatement and calculate...Ch. 6 - Prob. 1PBCh. 6 - Prob. 2PBCh. 6 - Prob. 3PBCh. 6 - Prob. 4PBCh. 6 - Prob. 5PBCh. 6 - Prob. 6PBCh. 6 - Prob. 7PBCh. 6 - Prob. 8PBCh. 6 - Prob. 9PBCh. 6 - Prob. 10PBCh. 6 - Prob. 1APCh. 6 - American Eagle Outfitters, Inc. AP6-2 Financial...Ch. 6 - Prob. 3APCh. 6 - Prob. 4APCh. 6 - Ethics AP6-5 Horizon Corporation manufactures...Ch. 6 - Prob. 6APCh. 6 - Prob. 7APCh. 6 - Prob. 8AP
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