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    The document describes inventory calculations using average cost and FIFO costing methods for Acme company. It provides beginning inventory, purchases, sales, and ending inventory figures. Calculations are shown for determining cost of goods sold and ending inventory value under each method. A second section discusses the effects of an understated ending inventory error on various financial statement line items in subsequent periods. It defines key terms and indicates whether items would be understated, overstated, or unaffected. The third section calculates inventory turnover ratio for Delta Company. The fourth section provides multiple inventory purchases and a sale, and calculates cost of goods sold using FIFO costing for a periodic inventory system.

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    The document describes inventory calculations using average cost and FIFO costing methods for Acme company. It provides beginning inventory, purchases, sales, and ending inventory figures. Calculations are shown for determining cost of goods sold and ending inventory value under each method. A second section discusses the effects of an understated ending inventory error on various financial statement line items in subsequent periods. It defines key terms and indicates whether items would be understated, overstated, or unaffected. The third section calculates inventory turnover ratio for Delta Company. The fourth section provides multiple inventory purchases and a sale, and calculates cost of goods sold using FIFO costing for a periodic inventory system.

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    40 views2 pages

    CW 3 Solution

    Uploaded by

    Mtl Andy
    The document describes inventory calculations using average cost and FIFO costing methods for Acme company. It provides beginning inventory, purchases, sales, and ending inventory figures. Calculations are shown for determining cost of goods sold and ending inventory value under each method. A second section discusses the effects of an understated ending inventory error on various financial statement line items in subsequent periods. It defines key terms and indicates whether items would be understated, overstated, or unaffected. The third section calculates inventory turnover ratio for Delta Company. The fourth section provides multiple inventory purchases and a sale, and calculates cost of goods sold using FIFO costing for a periodic inventory system.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    of 2

    1. Acme has the following information about its inventory.

    Units Unit Cost Balance


    Beginning inventory- 120 $ 3.00 120 units
    May 1
    Purchase- May 2 280 2.80 400 units
    Sold units – May 15 300 100 units
    Purchase – May 20 450 2.20 550 units

    Using a perpetual inventory system, calculate the costs to be assigned to the ending
    inventory and to goods sold under:
    a. Average cost
    b. FIFO

    Average Cost Method:


    Purchases Cost of Goods Balance
    Sold
    Beginning inventory- 120 @ $3.00 $360
    May 1 $360 (120 @ $3.00)
    Purchase- May 2 280 @ $2.80 $1,144
    $784 (400@$2.86)
    Sold units – May 15 $858 $286
    (300@ $2.86) (100 @ $2.86)
    Purchase – May 20 450 @ $2.20 $1,276
    $990 (550@$2.32)

    Cost of Ending Inventory using the Average costing method is $1,276


    Cost of Goods Sold using the Average costing method is $858

    FIFO:
    Purchases Cost of Goods Balance
    Sold
    Beginning inventory- 120 @ $3.00 = 120 @ $3.00 $360
    May 1 $360
    Purchase- May 2 (280 @ $2.80) = 120 @ $3.00 $360
    $784 280 @ $2.80 $784
    $1,144
    Sold units – May 15 120 @ $3.00 = 100 @ $2.80 $280
    $360
    180 @ $2.80 =
    =$504
    Purchase – May 20 450 @ $2.20 = 100 @ $2.80 $280
    $990 450 @ $2.20 $990
    $1,270

    Cost of Ending Inventory using the FIFO costing method is $1,270


    Cost of Goods Sold using the FIFO costing method is $864
    2. Paddy Company, which uses a perpetual inventory system, miscounted its ending
    inventory in Year 1, causing it to be understated. The error was not detected. Using the
    symbols U, O, and NE to represent understated, overstated, and no effect, indicate the
    impact of the error on each of the following items.
    Item Effect
    Year 1 cost of goods sold
    Year 1 gross profit
    Year 1 ending shareholders’ equity
    Year 2 cost of goods sold
    Year 2 net income

    Item Effect
    Year 1 cost of goods sold O
    Year 1 gross profit U
    Year 1 ending shareholders’ equity U
    Year 2 cost of goods sold U
    Year 2 net income O

    3. Given the following information for Delta Company, calculate the inventory turnover ratio:

    Cost of Goods Sold $945,230


    Opening Inventory $278,560
    Ending Inventory $303,457

    = $945,230 ÷ (($278,560+$303,457) ÷ 2) = $945,230 ÷ $291,008.5 = 3.25 times

    4. A company just starting business made the following four inventory purchases in August:
    August 1 300 units $1,560
    August 12 400 units 2,340
    August 24 400 units 2,520
    August 30 300 units 1,980
    1,400 units $8,400

    On August 24, there were a total of 900 units sold. Using the FIFO inventory cost method
    for a periodic inventory system, what is the amount allocated to cost of goods sold for
    August?

    August 1 300 units cost $1,560


    August 12 400 units cost $2,340
    August 24 200 units cost (2,520/400) = $6.3 per unit x 200 = $1,260

    Total cost of goods sold = $1,560 + $2,340 + $1,260 = $5,160

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