Alternative Inventory Methods
Response to the following problem:
The Totman Company has the following transactions during the months of January and February:
|
Date
|
|
Transaction
|
Units
|
Cost/Unit
|
|
January
|
1
|
Balance
|
200
|
|
|
|
10
|
Purchase
|
50
|
$25
|
|
|
22
|
Sale
|
40
|
|
|
|
28
|
Purchase
|
60
|
27
|
|
February
|
4
|
Purchase
|
40
|
28
|
|
|
14
|
Sale
|
50
|
|
|
|
23
|
Sale
|
20
|
|
The cost of the inventory at January 1 is $24, $23, and $15 per unit, respectively, under the FIFO, average, and LIFO cost flow assumptions. Required
1. Compute the cost of goods sold for each month and the inventories at the end of each month for the following alternatives:
a. FIFO periodic
b. FIFO perpetual
c. LIFO periodic
d. LIFO perpetual
e. Weighted average (round unit costs to 2 decimal places)
f. Moving average (round unit costs to 2 decimal places)
2. Reconcile the difference between the LIFO periodic and the LIFO perpetual results.
3. If the company had purchased an additional 25 units for $30 each on February 27, compute the cost of goods sold for February under FIFO periodic and LIFO periodic.
4. For February, compute the company's inventory turnover under the FIFO and LIFO periodic methods. Use ending inventory instead of average inventory for convenience. Which measure would you use in your evaluation of the company? How would you convert a monthly inventory turnover into an annual measure to use for comparison with other companies? What assumptions are involved?