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HOMEWORK (CHAPTER 6)
E6-5:
Units in ending inventory: 93 − 74 = 19 (units) Calculate the ending inventory at May 31 using : (a) FIFO: 19 × $ 11 =$ 209 (b) LIFO: 19 × $ 9 =$ 171 (c) Average-cost: (^19) × $ 10.086∗¿ $ 191. *(Weighted-average price: $ 938 ÷ 93 =$ 10.086) Cost of goods sold using: (a) FIFO: $ 938 – $ 209 =$ 729 (b) LIFO: $ 938 – $ 171 =$ 767 (c) Average-cost: (^) $ 938 – $ 191.634=$ 746. E6-7: (a) Compute: Total units available for sale: 120 + 370 + 200 = 690 (units) Total cost of goods available for sale: (^) $ 600 + $ 2,220+$ 1,400=$ 4, Weighted-average price: $ 4,220 ÷ 690 =$ 6. FIFO LIFO Average Cost Cost of ending inventory
200 × $ 7 + 30 × $ 6 =$ 1,580 120 × $ 5 + 110 × $ 6 =$ 1,260 230 × $ 6,116∗¿ $ 1406,
Cost of goods sold
(b) Because of the period of inflation, the average price level of a basket of selected goods and services in an economy increases over some period of time (^) ($ 5 < $ 6 <$ 7 ). Therefore, FIFO gives the highest ending inventory (because ending inventory is calculated by
taking the unit cost of the most recent purchases) and LIFO gives highest cost of goods sold (because cost of goods sold is calculated by taking the unit cost of the most recent purchases). (c) Regardless of the changing prices, the average-cost values for ending inventory and cost of goods sold always lie between the ending inventory and cost of goods sold for FIFO and LIFO. (d) For example: The company purchased a products at $5, b products at $6 and c products at $7. Under average-cost method, to calculate the weighted-average cost, we use the following formula: 5 × a+ 6 × b+ 7 × c a+b+c Assume that a=b=c. Then, we have: 5 × a+ 6 × a+ 7 × a a+a+a
( 5 + 6 + 7 )× a 3 × a
Therefore, if the quantity of each type of goods is the same, the average cost is $6. However, the quantity of each type of goods in Jeters Company is not the same ( 120 ≠ 370 ≠ 200 ), that’s why the average cost is not $6. In conclusion, 6-dollar average cost does not reflect accurately the differences among the quantity of each type of goods available for sales. P6-5A: (a) Compute: Sales Revenue: (^100) × $ 35 + 60 × $ 40 + 110 × $ 40 =$ 10, Units of goods sold: 100 + 60 + 110 = 270 (units) Total units available for sale: (^60) + 120 + 100 + 70 = 350 (units) Cost of goods available for sale: 60 × $ 24 + 120 × $ 26 + 100 × $ 27 + 70 × $ 29 =$ 9, Units in ending inventory: (^350) – 270 = 80 (units) Weighted-average price: (^) $ 9,290 : 350 =$ 26. LIFO FIFO Average-cost Cost of 60 × $ 24 + 20 × $ 26 =$ 1,960 70 × $ 29 + 10 × $ 27 =$ 2,300 80 × $ 26.543=$ 2,123.
