Question

Pronghorn Distribution markets CDs of the performing artist Fishe. At the beginning of October, Pronghorn had in beginning inventory 3,500 of Fishe’s CDs with a unit cost of $7. During October, Pronghorn made the following purchases of Fishe’s CDs.

Oct. 3		4,375	@	$8		Oct. 19		5,250	@	$10
Oct. 9		6,125	@	$9		Oct. 25		7,000	@	$11

During October, 19,075 units were sold. Pronghorn uses a periodic inventory system.

Cost of goods available for sale- 244,125

Weighted-average cost per units -9.3

		FIFO		LIFO		AVERAGE-COST
The ending inventory		$enter a dollar amount rounded to 0 decimal places		$enter a dollar amount rounded to 0 decimal places		$enter a dollar amount rounded to 0 decimal places
The cost of goods sold		$enter a dollar amount rounded to 0 decimal places		$enter a dollar amount rounded to 0 decimal places		$enter a dollar amount rounded to 0 decimal places

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 FIFOLIFOAverage-cost produces the highest inventory amount, $enter a dollar amount .
(2)		select a method FIFOLIFOAverage-cost produces the highest cost of goods sold, $enter a dollar amount .

Answer 1

	Units	Unit cost	Total
Beginning inventory	3500	7	24500
Oct. 3	4375	8	35000
Oct. 9	6125	9	55125
Oct. 19	5250	10	52500
Oct. 25	7000	11	77000
Total	26250		244125
Cost of goods available for sale	244125
Weighted-average cost per unit	9.3	=244125/26250
Ending inventory units	7175	=26250-19075
FIFO:
The ending inventory	78750	=(7000*11)+(7175-7000)*10
The cost of goods sold	165375	=244125-78750
LIFO:
The ending inventory	53900	=(3500*7)+(7175-3500)*8
The cost of goods sold	190225	=244125-53900
Average cost:
The ending inventory	66728	=7175*9.3
The cost of goods sold	177397 or 177398	=244125-66728
FIFO produces the highest inventory amount
LIFO produces the highest cost of goods sold.