Question

Waterway Industries markets CDs of numerous performing artists. At the beginning of March, Waterway had in beginning inventory 2,500 CDs with a unit cost of $6. During March, Waterway made the following purchases of CDs.

March 5		2,200		@		$7		March 21		5,200		@		$9
March 13		3,900		@		$8		March 26		2,200		@		$10

During March 12,200 units were sold. Waterway uses a periodic inventory system.

(a)

Determine the cost of goods available for sale.

The cost of goods available for sale

$enter the cost of goods available for sale in dollars

Calculate Average Cost. (Round answer to 3 decimal places, e.g. 5.125.)

Average Cost

$enter an average cost in dollars

Determine (1) the ending inventory and (2) the cost of goods sold under each of the assumed cost flow methods (FIFO, LIFO, and average-cost). (Round answers to 0 decimal places, e.g. 125.)

		FIFO		LIFO		AVERAGE-COST
The ending inventory		$enter a dollar amount		$enter a dollar amount		$enter a dollar amount
The cost of goods sold		$enter a dollar amount		$enter a dollar amount		$enter a dollar amount

Which cost flow method results in (1) the highest inventory amount for the balance sheet and (2) the highest cost of goods sold for the income statement?

(1)		select a method which                                                                      Average-costFIFOLIFO produces the highest inventory amount.
(2)		select a method which                                                                      Average-costFIFOLIFO produces the highest cost of goods sold.

Answer 1

	Unit	Unit Cost	Total Cost
Beginning inventory	2500	6	15000
Purchase 1	2200	7	15400
Purchase 2	3900	8	31200
Purchase 3	5200	9	46800
Purchase 4	2200	10	22000
Total	16000		130400

a) Cost of goods available for sale = $130400

b) Average cost per unit = 130400/16000 = 8.15

c) Calculate following

	FIFO		LIFO		AVERAGE-COST
The ending inventory	2200*10+1600*9 = 36400		15000+1300*7 = 24100		3800*8.15 = 30970
The cost of goods sold	130400-36400 = 94000		130400-24100 = 106300		12200*8.15 = 99430

Which cost flow method results in (1) the highest inventory amount for the balance sheet and (2) the highest cost of goods sold for the income statement?

(1)		FIFO produces the highest inventory amount.
(2)		LIFO produces the highest cost of goods sold.