Chapter 6 Lab: Perpetual Inventory Using FIFO Method

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Ch. 6 Lab Perpetual inventory using FIFO The following units of a particular item were available for sale during the calendar year: Date Line Item Description Values Jan. 1 Inventory 3,800 units at $42 Apr. 19 Sale 2,400 units June 30 Purchase 4,300 units at $46 Sept. 2 Sale 5,200 units Nov. 15 Purchase 2,000 units at $49 This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the question below. Open spreadsheet – The spreadsheet is also included. The firm maintains a perpetual inventory system. Determine the cost of goods sold for each sale and the inventory balance after each sale, assuming the first-in, first-out method. Present the data in the form illustrated in Exhibit 3 . Under FIFO, if units are in inventory at two different costs, enter the units with the LOWER unit cost first in the Cost of Goods Sold Unit Cost column and in the Inventory Unit Cost column. Schedule of Cost of Goods Sold FIFO Method Date Purchases Quantity Purchases Unit Cost Purchases Total Cost Cost of Goods Sold Quantity Cost of Goods Sold Unit Cost Cost of Goods Sold Total Cost Inventory Quantity Inventory Unit Cost Inventory Total Cost Jan. 1 fill in the blank 2 $fill in the blank 3 $fill in the blank 4 Apr. 19 fill in the blank 5 $fill in the blank 6 $fill in the blank 7 fill in the blank 8 fill in the blank 9 fill in the blank 10 June 30 fill in the blank 11 $fill in the blank 12 $fill in the blank 13 fill in the blank 14 fill in the blank 15 fill in the blank 16 June 30 fill in the blank 17 fill in the blank 18 fill in the blank 19 Sept. 2 fill in the blank 20 fill in the blank 21 fill in the blank 22 Sept. 2 fill in the blank 23 fill in the blank 24 fill in the blank 25 fill in the blank 26 fill in the blank 27 fill in the blank 28 Nov. 15 fill in the blank 29 fill in the blank 30 fill in the blank 31 fill in the blank 32 fill in the blank 33 fill in the blank 34 Nov. 15 fill in the blank 35 fill in the blank 36 fill in the blank 37 Dec. 31 Balances $fill in the blank 38 $fill in the blank 39 Part 2. Perpetual inventory using LIFO The following units of a particular item were available for sale during the calendar year: Date Line Item Description Values Jan. 1 Inventory 4,300 units at $42 Apr. 19 Sale 2,400 units June 30 Purchase 4,500 units at $45 Sept. 2 Sale 5,500 units Nov. 15 Purchase 1,500 units at $48 This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the question below. Open spreadsheet The firm maintains a perpetual inventory system. Determine the cost of goods sold for each sale and the inventory balance after each sale, assuming the last-in, first-out method. Present the data in the form illustrated in Exhibit 4 . Under LIFO, if units are in inventory at two or more different costs, enter the units with the LOWER unit cost first in the Inventory Unit Cost column. Schedule of Cost of Goods Sold LIFO Method Date Purchases Quantity Purchases Unit Cost Purchases Total Cost Cost of Goods Sold Quantity Cost of Goods Sold Unit Cost Cost of Goods Sold Total Cost Inventory Quantity Inventory Unit Cost Inventory Total Cost Jan. 1 fill in the blank 2 $fill in the blank 3 $fill in the blank 4 Apr. 19 fill in the blank 5 $fill in the blank 6 $fill in the blank 7 fill in the blank 8 fill in the blank 9 fill in the blank 10 June 30 fill in the blank 11 $fill in the blank 12 $fill in the blank 13 fill in the blank 14 fill in the blank 15 fill in the blank 16 June 30 fill in the blank 17 fill in the blank 18 fill in the blank 19 Sept. 2 fill in the blank 20 fill in the blank 21 fill in the blank 22 Sept. 2 fill in the blank 23 fill in the blank 24 fill in the blank 25 fill in the blank 26 fill in the blank 27 fill in the blank 28 Nov. 15 fill in the blank 29 fill in the blank 30 fill in the blank 31 fill in the blank 32 fill in the blank 33 fill in the blank 34 Nov. 15 fill in the blank 35 fill in the blank 36 fill in the blank 37 Dec. 31 Balances $fill in the blank 38 $fill in the blank 39 Part 3 Periodic inventory by three methods The units of an item available for sale during the year were as follows: Date Line Item Description Value Jan. 1 Inventory 2,600 units at $3 Feb. 17 Purchase 3,800 units at $5 Jul. 21 Purchase 2,500 units at $7 Nov. 23 Purchase 1,100 units at $9 There are 1,300 units of the item in the physical inventory at December 31. The periodic inventory system is used. This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below. Open spreadsheet a. Determine the inventory cost by the first-in, first-out method. fill in the blank 1 of 1$ b. Determine the inventory cost by the last-in, first-out method. fill in the blank 1 of 1$ c. Determine the inventory cost by the weighted average cost method. Round your answer to the nearest dollar. fill in the blank 1 of 1$

Paper For Above instruction

The assignment involves performing comprehensive inventory analysis using different inventory valuation methods—including FIFO, LIFO, and weighted average—based on specific data sets provided for the year. It requires calculating the cost of goods sold, inventory balances after each transaction, and total inventory costs under each method. These calculations should be performed using Excel spreadsheets with formulas, replicating the actual inventory tracking scenarios described in the problem. The analysis exemplifies understanding of perpetual and periodic inventory systems, emphasizing how inventory costs vary depending on the valuation method. The final outputs include detailed schedules for each method and the total inventory value under periodic valuation methods.

Paper For Above instruction

Inventory management and valuation are critical aspects of accounting that influence a firm’s financial statements and decision-making processes. Among the various methods used for inventory valuation, FIFO (First-In, First-Out), LIFO (Last-In, First-Out), and weighted average cost are the most prevalent. This paper aims to analyze these three inventory valuation methods by applying them to data sets representing a year's transactions involving several purchase and sale events, using both perpetual and periodic inventory systems as context.

Introduction

Effective inventory management is essential for accurate financial reporting, cash flow management, and strategic planning. The choice of inventory valuation method significantly impacts the reported cost of goods sold (COGS), Gross Profit, and ending inventory balances. FIFO assumes the earliest acquired items are sold first, which often reflects the actual flow of inventory in many industries. Conversely, LIFO assumes the latest acquisitions are sold first, leading to different financial impacts, especially during inflationary periods. Weighted average costs smooth out price fluctuations by averaging the costs of items available for sale, providing a middle ground perspective.

Perpetual Inventory System and FIFO Method

The first scenario involves a perpetual inventory system applying FIFO to a series of purchases and sales. Under FIFO, the oldest inventory units are sold first, which implies that the cost of goods sold is based on the earliest purchase prices, and the ending inventory is composed of the most recent acquisitions. Using Excel formulas, the detailed schedule tracks each transaction's impact on inventory valuation:

• Initial inventory: 3,800 units at $42.
• Subsequent purchases: 4,300 units at $46, and 2,000 units at $49.
• Sales: 2,400 units and 5,200 units, which necessitate pulling from earliest inventories first.

The calculations reveal how COGS fluctuates with purchase prices and how inventory balances are replenished and reduced over time. These detailed computations assist in understanding how FIFO tends to produce a higher inventory valuation during inflation and a lower COGS compared to LIFO.

Perpetual Inventory System and LIFO Method

Applying the LIFO method within a perpetual system involves similar transaction tracking but with different assumptions about the cost flow—latest inventory is sold first. This approach typically results in higher COGS during inflation, lowering net income and taxable income temporarily. The detailed Excel analysis ensures an accurate representation of inventory valuation after each sale, accounting for the latest acquisition costs. The calculations highlight the impact of the LIFO method on financial statements and tax perspectives.

Periodic Inventory Method Using Three Valuation Approaches

The periodic system aggregates inventory data at specific intervals, usually at year-end, and applies valuation methods to compute ending inventory and COGS:

• FIFO method: Inventory is valued based on the oldest costs remaining in inventory after recent purchases.
• LIFO method: Inventory consists of the most recent purchases, reflecting current market prices more accurately during inflation.
• Weighted average method: Allocates an average cost per unit, smoothing price fluctuations across the period.

The calculations incorporate the total units available for sale, subtracting the physical count at year-end (1,300 units) to determine ending inventory. The resulting inventory costs under each method influence financial reporting and tax liabilities.

Conclusion

Understanding the distinctions between FIFO, LIFO, and weighted average methods, and their effects under perpetual and periodic systems, is crucial for financial managers and accountants. Each method bears implications for income measurement, inventory valuation, and tax strategies. Accurate computation, facilitated by Excel tools and formulas, ensures reliable financial reporting aligned with regulatory standards and management needs. The exercise underscores the importance of selecting an appropriate inventory valuation approach based on economic conditions, industry practices, and organizational objectives.

References

• Burke, B. (2019). Financial Accounting. Pearson.
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