Business, 18.03.2021 01:20 joedawg50

Marigold Company uses the periodic inventory method and had the following inventory information available: Units Unit Cost Total Cost
1/1 Beginning Inventory 98 $4 $392
1/20 Purchase 490 $5 2,450
7/25 Purchase 98 $7 686
10/20 Purchase 294 $8 2,352
980 $5,880
A physical count of inventory on December 31 revealed that there were 343 units on hand. Answer the following independent questions.
1. Assume that the company uses the FIFO method. The value of the ending inventory at December 31 is $the value of the ending inventory in dollars.
2. Assume that the company uses the average cost method. The value of the ending inventory on December 31 is $the value of the ending inventory in dollars.
3. Assume that the company uses the LIFO method. The value of the ending inventory on December 31 is $the value of the ending inventory in dollars 4.
A) Determine the difference in the amount of income that the company would have reported if it had used the FIFO method instead of the LIFO method $enter the amount of difference 4.
B) Would income have been greater or less?

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Answer from: arianaguerin

1. Assume that the company uses the FIFO method. The value of the ending inventory at December 31 is $2,695.

2. Assume that the company uses the average cost method. The value of the ending inventory on December 31 is $2,058.

3. Assume that the company uses the LIFO method. The value of the ending inventory on December 31 is $1,617.

A) The difference in the amount of income that the company would have reported if it had used the FIFO method instead of the LIFO method is $1,078.

B) The income would have been greater.

Explanation:

Total units available for sale = 980

Total cost of units available for sale = $5,880

Ending inventory units = 343

Units of inventory sold = Total units available for sale - Ending inventory = 980 - 343 = 637

1. Assume that the company uses the FIFO method. The value of the ending inventory at December 31 is $the value of the ending inventory in dollars.

Value of the ending inventory using FIFO method = Total cost of 294 units purchased on 10/20 + Value of remaining 49 (i.e. 343 - 294 = 49) units at $7 cost per unit of 7/25 Purchase = $2,352 + (49 * $7) = $2,695

2. Assume that the company uses the average cost method. The value of the ending inventory on December 31 is $the value of the ending inventory in dollars.

Average cost per unit = Total cost of units available for sale / Total units available for sale = $5,880 / 980 = $6 per unit

Value of the ending inventory using average cost method = Ending inventory units * Average cost per unit = 343 * $6 = $2,058

3. Assume that the company uses the LIFO method. The value of the ending inventory on December 31 is $the value of the ending inventory in dollars.

Value of the ending inventory using LIFO method = Total cost of 98 units of 1/1 Beginning Inventory + Value of remaining 245 (i.e. 343 - 98 = 245) units at $5 cost per unit of 1/20 Purchase = $392 + (245 * $5) = $1,617

A) Determine the difference in the amount of income that the company would have reported if it had used the FIFO method instead of the LIFO method $enter the amount of difference

This can be determined as follows:

Difference = Value of the ending inventory using FIFO method - Value of the ending inventory using LIFO method = $2,695 - $1,617 = $1,078

B) Would income have been greater or less?

Since the Value of the ending inventory using FIFO method of $2,695 is greater than the Value of the ending inventory using LIFO method of $1,617, this implies that the income would have been greater.

This is because the cost of goods sold to be deducted from the sales revenue would have been lower with the higher Value of the ending inventory using FIFO method of $2,695. This would make the income to be greater.

Answer from: Quest

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Answer from: Quest

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