Kamis Pink Purses buys and then resells a special type of pink purse. Here is some information

Question:

Kami’s Pink Purses buys and then resells a special type of pink purse. Here is some information concerning Kami’s inventory activity during the month of August 2010:

August 2860 units on hand at a total cost of $51,600

August 6Sold 400 units at $120 per unit

August 8Purchased 640 units at $55 per unit

August 12Purchased 425 units at $50 per unit

August 15Sold 600 units at $120 per unit

August 21Purchased 300 units at $50 per unit

August 24Sold 800 units at $115 per unit

August 31Purchased 100 units at $45 per unit

Requirements

1. Calculate the value of the ending inventory and cost of goods sold, assuming the company uses a periodic inventory system and the FIFO cost flow assumption.

2. Calculate the value of the ending inventory and cost of goods sold, assuming the company uses a periodic inventory system and the LIFO cost flow assumption.

3. Calculate the value of the ending inventory and cost of goods sold, assuming the company uses a periodic inventory system and the weighted average cost flow assumption.

4. Which of the three methods will result in the highest cost of goods sold for August?

5. Which of the three methods will provide the most current ending inventory value for Kami’s balance sheet at August 31, 2010?

6. How would the differences between the methods affect Kami’s income statement for August and balance sheet at August 31, 2010?

7. Calculate the company’s inventory turnover ratio and average days in inventory for the month for each method in items (1), (2), and (3).

8. At the end of the month, the current replacement cost of the inventory is $32,000. Indicate at what amount the company’s inventory will be reported using the lower-of-cost-or-market rule for each method (FIFO, LIFO, and weighted average cost).

Inventory Turnover Ratio
Inventory Turnover RatioThe inventory turnover ratio is a ratio of cost of goods sold to its average inventory. It is measured in times with respect to the cost of goods sold in a year normally. Inventory Turnover Ratio FormulaWhere,... Ending Inventory
The ending inventory is the amount of inventory that a business is required to present on its balance sheet. It can be calculated using the ending inventory formula Ending Inventory Formula =... Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...