Suggested Solution

Chapter 6: Inventories
SOLUTIONS TO EXERCISES

EXERCISE 6-4

(a) FIFO
Beginning inventory (26 X $97).................................... $
2,522
Purchases
Sept. 12 (45 X $102) ............................................... $4,590
Sept. 19 (20 X $104) ............................................... 2,080
Sept. 26 (50 X $105) ............................................... 5,250
11,920
Cost of goods available for
sale ................................................................................ 14,
442
Less: Ending inventory (20 X $105) ............................
2,100
Cost of goods
sold ................................................................................ $12
,342

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EXERCISE 6-4 (Continued)

Proof
Date Units Unit Cost Total Cost
9/1 26 $ 97 $ 2,522
9/12 45 102 4,590
9/19 20 104 2,080
9/26 30 105 3,150
121 $12,342

LIFO
Cost of goods available for
sale .......................................................................................... $14,442
Less: Ending inventory (20 X $97).....................................................
1,940
Cost of goods
sold .......................................................................................... $12,502
Proof
Date Units Unit Cost Total Cost
9/26 50 $105 $ 5,250
9/19 20 104 2,080
9/12 45 102 4,590
9/1 6 97 582
121 $12,502
(b)
Cost of
goods
FIFO $2,100 (ending inventory) + $12,342 (COGS) = $14,442
LIFO $1,940 (ending inventory) + $12,502 (COGS) = $14,442 } available
for sale
Under both methods, the sum of the ending inventory and cost of goods
sold equals the same amount, $14,442, which is the cost of goods available
for sale.

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 PROBLEM 6-2A

(a) COST OF GOODS AVAILABLE FOR SALE

Date Explanation Units Unit Cost Total Cost
Oct. 1 Beginning Inventory 2,000 $7 $ 14,000
3 Purchase 2,500 8 20,000
9 Purchase 3,500 9 31,500
19 Purchase 3,000 10 30,000
25 Purchase 4,000 11 44,000
Total 15,000 $139,500

(b) FIFO
(1) Ending Inventory (2) Cost of Goods Sold
Unit Total Cost of goods
Date Units Cost Cost available for sale $139,500
Oct. 25 4,000 $11 $44,000 Less: Ending
19 100 10 1,000 inventory 45,000
4,100* $45,000 Cost of goods sold $ 94,500

*15,000 – 10,900 = 4,100

Proof of Cost of Goods Sold

Date Units Unit Cost Total Cost
Oct. 1 2,000 $7 $14,000
3 2,500 8 20,000
9 3,500 9 31,500
19 2,900 10 29,000
10,900 $94,500

LIFO
(1) Ending Inventory (2) Cost of Goods Sold
Unit Total Cost of goods
Date Units Cost Cost available for sale $139,500
Oct. 1 2,000 $7 $14,000

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3 2,100 8 16,800 Less: Ending 30,800
inventory
4,100 $30,800 Cost of goods sold $108,700

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PROBLEM 6-2A (Continued)

Proof of Cost of Goods Sold

Unit Total
Date Units Cost Cost
Oct. 25 4,000 $11 $ 44,000
19 3,000 10 30,000
9 3,500 9 31,500
3 400 8 3,200
10,900 $108,700

AVERAGE COST
(1) Ending Inventory (2) Cost of Goods Sold
$139,500 ÷ 15,000 = $9.30 Cost of goods available
for sale $139,500
Units Unit Cost Total Cost Less: Ending inventory 38,130
4,100 $9.30 $38,130 Cost of goods sold $101,370

(c) (1) FIFO results in the highest inventory amount for the balance
sheet, $45,000.

(2) LIFO results in the highest cost of goods sold, $108,700.

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 PROBLEM 6-5A

(a) Cost of Goods Available for Sale

Date Explanation Units Unit Cost Total Cost
June 1 Beginning Inventory 40 $40 $ 1,600
June 4 Purchase 135 43 5,805
June 18 Purchase 55 46 2,530
June 18 Purchase return (10) 46 (460)
June 28 Purchase 35 50 1,750
Total 255 $11,225

Ending Inventory in Units: Sales Revenue

Units available for sale 255 Unit
Sales (110 – 15 + 65) 160 Date Units Price Total Sales
Units remaining in ending inventory 95 June 10 110 $70 $ 7,700
11 (15) 70 (1,050)
25 65 76 4,940
160 $11,590

(1) LIFO

(i) Ending Inventory (ii) Cost of Goods Sold

June 1 40 @ $40 $1,600 Cost of goods available
4 55 @ 43 2,365 for sale $11,225
95 $3,965 Less: Ending inventory 3,965
Cost of goods sold $ 7,260

(iii) Gross Profit (iv) Gross Profit Rate

Sales revenue $11,590 Gross profit $ 4,330
= 37.4%
Cost of goods sold 7,260 Net sales $11,590
Gross profit $ 4,330

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PROBLEM 6-5A (Continued)

(2) FIFO

(i) Ending Inventory (ii) Cost of Goods Sold

June 28 35 @ $50 $1,750 Cost of goods available
18 45 @ $46 2,070 for sale $11,225
4 15 @ $43 645 Less: Ending inventory 4,465
95 $4,465 Cost of goods sold $ 6,760

(iii) Gross Profit (iv) Gross Profit Rate

Sales revenue $11,590 Gross profit $ 4,830
= 41.7%
Cost of goods sold 6,760 Net sales $11,590
Gross profit $ 4,830

(3) Average-Cost
Cost of goods available for sale
Weighted-average cost per unit:
Units available for sale
$11,225
= $44.02
255

(i) Ending Inventory (ii) Cost of Goods Sold

95 units @$44.02 4,181.90 Cost of goods available
for sale $11,225.00
Less: Ending inventory 4,181.90
Cost of goods sold $ 7,043.10

(iii) Gross Profit (iv) Gross Profit Rate

Sales revenue $11,590.00 Gross profit $ 4,546.90
= 39.2%
Cost of goods sold 7,043.10 Net sales $11,590.00
Gross profit $ 4,546.90

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(b) In this period of rising prices, LIFO gives the highest cost of goods
sold and the lowest gross profit. FIFO gives the lowest cost of
goods sold and the highest gross profit.

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