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 2 860 units on hand at a total cost of $51,600
August 6 Sold 400 units at $120 per unit
August 8 Purchased 640 units at $55 per unit
August 12 Purchased 425 units at $50 per unit
August 15 Sold 600 units at $120 per unit
August 21 Purchased 300 units at $50 per unit
August 24 Sold 800 units at $115 per unit
August 31 Purchased 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).



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  • CreatedSeptember 01, 2014
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