Module 8 Assignment: Cascade Inc. Completed

M8 Assignmentmodule 8 Assignment: Cascade Inc. completed the following inventory transactions during the month of September

Prepare a perpetual inventory record using FIFO, LIFO, and average cost methods based on the following transactions for Cascade Inc. during September:

• Balance on September 1: 25 units at an unknown cost
• September 1: Purchase of 40 units at an unknown cost
• September (date unspecified): Sale of 22 units
• September (date unspecified): Purchase of 30 units at an unknown cost

Note: The specific costs per unit are not provided in the original information. To complete the inventory records accurately, typical scenarios assume known unit costs or that the costs are to be determined based on information given or assumptions made. Since costs are not specified, in a practical setting, one would need additional data. For educational purposes, example unit costs will be used in illustrating the calculations for each inventory method.

Paper For Above instruction

Managing inventory effectively is crucial for accurately assessing a company's financial health and ensuring operational efficiency. Among various methods, FIFO (First-In, First-Out), LIFO (Last-In, First-Out), and Average Cost are widely used for perpetual inventory management. This paper demonstrates the preparation of inventory records for Cascade Inc. during September utilizing these methods, based on hypothetical costs assigned to transactions due to incomplete original data.

Introduction

Inventory management plays a vital role in retail and manufacturing sectors, influencing cost valuation, profit margins, and taxation. The perpetual inventory system provides real-time tracking of inventory levels and costs. The three primary methods—FIFO, LIFO, and Average Cost—offer different perspectives on inventory valuation, impacted by market conditions and strategic decision-making. This paper illustrates how to prepare perpetual inventory records under each method for Cascade Inc., based on typical assumptions of unit costs.

Assumptions and Data

Given the absence of specific unit costs in the original problem, we assume the following for illustration:

• Initial balance on September 1: 25 units @ $10 each
• September 1 purchase: 40 units @ $12 each
• Sale on September: 22 units (cost will be calculated based on FIFO, LIFO, and Average methods)
• September purchase: 30 units @ $11 each

This set of assumptions allows us to demonstrate the inventory calculations comparably across the three methods.

FIFO Method

Under FIFO, the earliest purchased goods are sold first, hence inventory remaining consists of the most recent purchases. The perpetual FIFO inventory record is shown below:

Note: The above illustrates partial calculations; the complete ledger would detail all transactions meticulously.

LIFO Method

In LIFO, the most recent purchases are sold first. The perpetual LIFO inventory record is as follows:

Subsequent purchases and sales would adjust the inventory accordingly, maintaining the last-in costs on top.

Average Cost Method

The average cost method computes a new average after each purchase. The calculation proceeds as follows:

• Initial inventory: 25 units @ $10 — total $250
• September 1 purchase: 40 units @ $12 — total $480
• Weighted average before sale: (25×10 + 40×12) / (25+40) = ($250 + $480) / 65 ≈ $11.38 per unit
• Sale of 22 units: 22×$11.38 ≈ $250.36 cost of goods sold (COGS), remaining inventory units: 43 (65−22)
• Remaining inventory: 43 units @ $11.38
• September 2 purchase: 30 units @ $11
• New total units: 43 + 30 = 73
• New total cost: 43×$11.38 + 30×$11 ≈ $489.34 + $330 = $819.34
• New average cost: $819.34 / 73 ≈ $11.21 per unit

Remaining inventory after all transactions: 73 units @ approximately $11.21 per unit.

Conclusion

Accurate perpetual inventory records are essential for inventory valuation, cost control, and financial reporting. FIFO provides a realistic view during inflationary periods by appraising inventory at recent costs, LIFO emphasizes current costs with potential tax advantages, while the Average Cost smooths price fluctuations. The choice of method should align with business objectives, inventory nature, and regulatory standards. Despite assumptions made here due to incomplete data, these calculations exemplify the mechanics behind each method, underlining their respective impacts on financial statements and decision-making processes.

References

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