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Presentation/PPT
27/08/2022
Periodic Inventory System and Inventory Costing Methods
P 1. El Faro Company merchandises a single product called Smart. The following
data represent beginning inventory and purchases of Smart during the past year:
January 1 inventory, 34,000 units at $11.00; February purchases, 40,000 units
at $12.00; March purchases, 80,000 units at $12.40; May purchases, 60,000
units at $12.60; July purchases, 100,000 units at $12.80; September purchases,
80,000 units at $12.60; and November purchases, 30,000 units at $13.00. Sales
of Smart totaled 393,000 units at $20.00 per unit. Selling and administrative
expenses totaled $2,551,000 for the year. El Faro Company uses the periodic
inventory system.
Required
1. Prepare a schedule to compute the cost of goods available for sale.
2. Compute income before income taxes under each of the following inventory
cost flow assumptions: (a) the average-cost method; (b) the FIFO method;
and (c) the LIFO method.
3. Compute inventory turnover and days’ inventory on hand under each of the
inventory cost flow assumptions listed in requirement 2. What conclusion
can you draw?
Periodic Inventory System and Inventory Costing Methods
P 2. The inventory of Product PIT and data on purchases and sales for a twomonth
period follow. The company closes its books at the end of each month. It
uses the periodic inventory system.
Apr. 1 Beginning inventory 50 units @ $204
10 Purchase 100 units @ $220
17 Sale 90 units
30 Ending inventory 60 units
May 2 Purchase 100 units @ $216
14 Purchase 50 units @ $224
22 Purchase 60 units @ $234
30 Sale 200 units
31 Ending inventory 70 units
Required
1. Compute the cost of ending inventory of Product PIT on April 30 and May 31
using the average-cost method. In addition, determine cost of goods sold for
April and May. Round unit costs to cents and totals to dollars.
2. Compute the cost of the ending inventory on April 30 and May 31 using the
FIFO method. In addition, determine cost of goods sold for April and May.
3. Compute the cost of the ending inventory on April 30 and May 31 using the
LIFO method. In addition, determine cost of goods sold for April and May.
4. Do the cash flows from operations for April and May differ depending on
which inventory costing method is used—average-cost, FIFO, or LIFO?
Explain.
Perpetual Inventory System and Inventory Costing Methods.
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