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ACC Tutorial

This document contains 4 tutorial examples that demonstrate calculating inventory costs under different inventory accounting methods. The first example calculates cost of goods sold using FIFO, LIFO, and average cost. The second calculates inventory value using lower of cost or market. The third calculates inventory turnover and days in inventory for 2009 and 2010. The fourth calculates cost of goods sold and ending inventory for March using FIFO, LIFO, and average cost.

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Muntasir Ahmmed
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312 views

ACC Tutorial

This document contains 4 tutorial examples that demonstrate calculating inventory costs under different inventory accounting methods. The first example calculates cost of goods sold using FIFO, LIFO, and average cost. The second calculates inventory value using lower of cost or market. The third calculates inventory turnover and days in inventory for 2009 and 2010. The fourth calculates cost of goods sold and ending inventory for March using FIFO, LIFO, and average cost.

Uploaded by

Muntasir Ahmmed
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Tutorial

1. The accounting records of Shumway Ag Implement shows the following


data.

Determine the cost of goods sold during the period under a periodic inventory
system using (a) the FIFO method, (b) the LIFO method, and (c) the average-cost
method.

Cost of goods available for sale = (4,000*$3) + (6,000*$4) = $36,000

Ending inventory=10,000-7,000 = 3,000 units

(a) FIFO: $36,000 - (3,000*$4) = $24,000

(b) LIFO: $36,000 - (3,000*$3) = $27,000

(c) Average cost per unit: [(4,000 @ $3) + (6,000 @ $4)]/10,000= $3.60

Average-cost: $36,000-(3,000*$3.60) = $25,200

2. (a) Tracy Company sells three different types of home heating stoves
(wood, gas, and pellet). The cost and market value of its inventory of
stoves are as follows.

Determine the value of the company’s inventory under the lower-of-cost-or-


market approach.

The lowest value under for each inventory type is Gas $79,000, Wood $250,000 and
Pellet $101,000. The total inventory value is the sum of these accounts, $430,000.
2. (b) Visual Company overstated its 2010 ending inventory by $22,000.
Determine the impact this error has on ending inventory, cost of goods
sold, and owner’s equity in 2010 and 2011.

2010 2011
Ending Inventory $22,000 No effect
overstated
Cost of goods $22,000 $22,000
sold understated overstated
Owner’s equity $22,000 No effect
overstated

3. Early in 2010 Westmoreland Company switched to a just-in-time inventory


system. Its sales, cost of goods sold, and inventory amounts for 2009 and
2010 are shown below.

Determine the inventory turnover and days in inventory for 2009 and 2010.
Discuss the changes in the amount of inventory, the inventory turnover and days
in inventory, and the amount of sales across the two years.

2009 2010
Inventory turnover $1,000,000÷(290,000+210,000)/ $910,000÷(210,000+50,000)/2
ratio 2 =4 =7
Days in inventory 365÷4=91.3 days 365÷7=52.1 days

The company experienced a very significant decline in its ending inventory as a result of
the just- in-time inventory. This decline improved its inventory turnover ratio and its days
in inventory. However, its sales declined by 10%. It is possible that this decline was
caused by the dramatic reduction in the amount of inventory that was on hand, which
increased the likelihood of “stock-outs”. To determine the optimal inventory level,
management must weigh the benefits of reduced inventory against the potential lost
sales caused by stock-outs.
4. Gerald D. Englehart Company has the following inventory, purchases, and
sales data for the month of March.

The physical inventory count on March 31 shows 500 units on hand.


Instructions:
Under a periodic inventory system, determine the cost of inventory on hand at
March 31 and the cost of goods sold for March under (a) (FIFO), (b) (LIFO), and
(c) average-cost.

The cost of goods available for sale is 6,450, as follows.

Inventory: 200 units* $4.00 $800


Purchases:
March 10 500 units* $4.50 2,250
March 20 400 units* $4.75 1,900
March 30 300 units* $5.00 1,500
Total: 1400 units $6,450

Under a periodic inventory system, the cost of goods sold under each cost under
each cost flow method is as follows.

FIFO Method

Ending Inventory:

Date Units Unit Cost Total Cost


March 30 300 $5 $1,500
March 20 200 $4.75 $950
$2,450
Cost of goods sold: $6,450-$2,450= $4,000

LIFO Method

Ending Inventory:
Date Units Unit Cost Total Cost
March 1 200 $4 $800
March 10 300 $4.5 $1,350
$2,150
Cost of goods sold: $6,450-$2,150= $4,300

Average-cost Method

Average unit cost: $6,450 ÷ 1,400= $4.61

Ending inventory: 500* $4.61= $2,305

Cost of goods sold: $6,450-$2,305= $4,145

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