P6A.2A

Compare specific identification, FIFO, and LIFO under perpetual method; use cost flow assumption to justify price increase.

(LO 2)

You are provided with the following information for Gobler Inc. Gobler Inc. uses the perpetual method of accounting for its inventory transactions.

March1	Beginning inventory of 2,000 liters at a cost of 60 per liter.
March3	Purchased 2,500 liters at a cost of 65 per liter.
March5	Sold 2,300 liters for $1.05 per liter.
March 10	Purchased 4,000 liters at a cost of 72 per liter.
March 20	Purchased 2,500 liters at a cost of 80 per liter.
March 30	Sold 5,200 liters for $1.25 per liter.

Instructions

(a) Prepare partial income statements through gross profit, and calculate the value of ending inventory that would be reported on the balance sheet, under each of the following cost flow methods. (Round ending inventory and cost of goods sold to the nearest dollar.)

• 1.Specific identification method assuming:
  • i.The March 5 sale consisted of 1,000 liters from the March 1 beginning inventory and 1,300 liters from the March 3 purchase; and
  • ii.The March 30 sale consisted of the following number of units sold from beginning inventory and each purchase: 450 liters from March 1, 550 liters from March 3, 2,900 liters from March 10, and 1,300 liters from March 20.
• 2.FIFO.
• 3.LIFO.

Gross profit:

(1) Specific identification	$3,715
(2) FIFO	$3,930
(3) LIFO	$3,476

(b)

How can companies use a cost flow method to justify price increases? Which cost flow method would best support an argument to increase prices?