Describe how costs flow from inventory to cost of goods sold for the following methods: (a) FIFO and (b) LIFO.
FIFO: Cost of oldest inventory is allocated to COGS.
LIFO: The cost of the newest inventory is allocated to COGS.
The cost of goods sold is made up of the direct cost incurred by the business entity in the manufacturing process of the sold goods.
Under the FIFO method, the cost incurred by the business entity to acquire the initial inventory is allocated to the cost of goods sold.
Under the LIFO method, the business entity will allocate the cost of the latest inventory to the cost of goods sold.
Wattan Company reports beginning inventory of 10 units at $60 each. Every week for four weeks it purchases an additional 10 units at respective costs of $61, $62, $65, and $70 per unit for weeks 1 through 4.
Compute the cost of goods available for sale and the units available for sale for this four-week period. Assume that no sales occur during those four weeks.
Warnerwoods Company uses a perpetual inventory system. It entered into the following purchases and sales transactions for March. (For specific identification, the March 9 sale consisted of 80 units from beginning inventory and 340 units from the March 5 purchase; the March 29 sale consisted of 40 units from the March 18 purchase and 120 units from the March 25 purchase.) Date Activities Units Acquired at Cost.
Units acquired at cost
Units sold at retail
100 units @ $50.00 per unit
400 units @ $55.00 per unit
420 units @ $85.00 per unit
120 units @ $60.00 per unit
200 units @ $62.00 per unit
160 units @ $95.00 per unit
1. Compute the cost of goods available for sale and the number of units available for sale.
Vibrant Company had $850,000 of sales in each of three consecutive years 2016–2018, and it purchased merchandise costing $500,000 in each of those years. It also maintained a $250,000 physical inventory from the beginning to the end of that three-year period. In accounting for inventory, it made an error at the end of year 2016 that caused its year-end 2016 inventory to appear on its statements as $230,000 rather than the correct $250,000.
Determine the correct amount of the company’s gross profit in each of the years 2016–2018.
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