Chapter 6 – Inventories
122. If a company values inventory at the lower of cost or market, which of the following is the value of inventory on the
balance sheet? Apply the lower-of-cost-or-market method to inventory as a whole.
Item
Inventory Quantity
Unit Cost Price
Unit Market Price
Product C
420
$ 6
$ 5
Product D
370
12
14
a.
$6,960
b.
$7,700
c.
$6,540
d.
$7,280
123. Safeguarding inventory from damage or theft is a primary objective for the control of inventory. If you were running
a clothing store, name three specific controls you would implement to guard inventory from theft.
124. List three different security measures taken to safeguard inventory.
Chapter 6 – Inventories
125. Three identical units of merchandise were purchased during March, as shown:
Steele Plate
Units
Cost
Mar. 3
Purchase
1
$ 830
10
Purchase
1
840
19
Purchase
1
880
Total
3
$2,550
Assume that one unit is sold on March 23 for $1,125. Determine the gross profit for March and ending inventory on
March 31 using (a) FIFO and (b) LIFO.
LEARNING OBJECTIVES:
126. Three identical units of merchandise were purchased during May, as follows:
Magnesium XP
Units
Cost
May 3
Purchase
1
$130
10
Purchase
1
136
19
Purchase
1
142
Total
3
$408
Assume that two units are sold on May 23 for $313 total. Determine the gross profit for May and ending inventory on
May 31 using (a) FIFO, (b) LIFO, and (c) average cost methods.
LEARNING OBJECTIVES:
Chapter 6 – Inventories
Gross Profit
127. Assume that three identical units of merchandise were purchased during October, as follows:
Units
Cost
October
5
Purchase
1
$ 5
12
Purchase
1
13
28
Purchase
1
15
Total
3
$33
Assume one unit is sold on October 31 for $28. Determine cost of goods sold, gross profit, and ending inventory under
the LIFO method.
Sales
Cost of goods sold
Gross profit
Ending inventory ($5 + $13)
128. Assume that three identical units of merchandise were purchased during October, as follows:
Units
Cost
October
5
Purchase
1
$ 5
12
Purchase
1
13
28
Purchase
1
15
Total
3
$33
Assume one unit is sold on October 31 for $28. Determine cost of goods sold, gross profit, and ending inventory under
the average cost method.
Chapter 6 – Inventories
Sales
129. Assume that three identical units of merchandise are purchased during October, as follows:
Units
Cost
October
5
Purchase
1
$ 5
12
Purchase
1
13
28
Purchase
1
15
Total
3
$33
Assume one unit is sold on October 31 for $28. Determine cost of goods sold, gross profit, and ending inventory under
the FIFO method.
Sales
Chapter 6 – Inventories
130. Three identical units of merchandise were purchased during July, as follows:
Date
Product Basic H
Units
Cost
July 3
Purchase
1
$ 35
10
Purchase
1
36
24
Purchase
1
37
Total
3
$108
Average cost per unit
$36
Assume one unit sells on July 28 for $45.
Determine the gross profit, cost of goods sold, and ending inventory on July 31 using (a) first-in, first-out, (b) last-in, first-
out, and (c) average cost flow methods.
131. Beginning inventory, purchases, and sales for an inventory item are as follows:
Sep. 1
Beginning inventory
24 units
@
$15
5
Sale
17 units
17
Purchase
10 units
@
$20
30
Sale
8 units
Assuming a perpetual inventory system and the first-in, first-out method, determine (a) the cost of the goods sold for the
September 30 sale and (b) the inventory on September 30.
Chapter 6 – Inventories
132. Beginning inventory, purchases, and sales for an inventory item are as follows:
Beginning inventory
150 units @ $755
Sale
120 units
First purchase
400 units @ $785
Sale
200 units
Second purchase
300 units @ $805
Sale
290 units
The firm uses the perpetual inventory system and there are 240 units of the item on hand at the end of the year. What is
the total cost of ending inventory according to FIFO?
$805 × 240 units = $193,200
133. Beginning inventory, purchases, and sales for an inventory item are as follows:
Beginning inventory
150 units @ $755
Sale
120 units
First purchase
400 units @ $785
Sale
200 units
Second purchase
300 units @ $805
Sale
290 units
The firm uses the perpetual inventory system and there are 240 units of the item on hand at the end of the year. What is
the total cost of ending inventory according to LIFO?
($755 × 30 units) + ($785 × 200 units) + ($805 × 10 units) = $187,700
Chapter 6 – Inventories
134. Beginning inventory, purchases, and sales for an inventory item are as follows:
Sep. 1
Beginning inventory
24 units
@
$10
5
Sale
17 units
17
Purchase
10 units
@
$15
30
Sale
8 units
Assuming a perpetual inventory system and the last-in, first-out method, determine (a) the cost of the goods sold for the
September 30 sale and (b) the inventory on September 30.
135. Using a LIFO perpetual cost flow, calculate the value of the ending inventory and the cost of goods sold for the
month of November of Beamer Company using the data below.
Nov. 1 Purchased 600 units $80 each
4 Sold 200 units
11 Purchased 350 units $82 each
12 Sold 275 units
22 Purchased 175 units $84 each
23 Sold 155 units
Calculate the following:
(a) Inventory valuation at the end of November
(b) Calculate the cost of goods sold for November
Chapter 6 – Inventories
LEARNING OBJECTIVES:
136. Complete the following table using the perpetual FIFO method of inventory flow.
Purchases
Cost of Goods Sold
Inventory
Date
Qty
Unit
Cost
Total
Cost
Qty
Unit
Cost
Total
Cost
Qty
Unit
Cost
Total
Cost
July 2
600
12.00
5
200
13.00
7
300
10
325
14.00
12
300
150
18
250
13.00
22
50
205
25
120
180
28
330
15.00
31
70
5
31
Bal
Chapter 6 – Inventories
137. Beginning inventory, purchases, and sales data for tennis rackets are as follows:
April 3
Inventory
12 units
@
$45
11
Purchase
13 units
@
$47
14
Sale
18 units
21
Purchase
9 units
@
$60
25
Sale
10 units
Chapter 6 – Inventories
Complete the inventory cost card assuming the business maintains a perpetual inventory system and calculates the cost of
goods sold and ending inventory using FIFO.
Purchases
Cost of
Goods Sold
Inventory
Date
Qty.
Unit
Cost
Total
Cost
Qty.
Unit
Cost
Total
Cost
Qty.
Unit
Cost
Total
Cost
Balances
April 3
138. Beginning inventory, purchases, and sales data for tennis rackets are as follows:
April 3
Inventory
12 units
@
$45
11
Purchase
13 units
@
$47
14
Sale
18 units
21
Purchase
9 units
@
$60
25
Sale
10 units
Chapter 6 – Inventories
Complete the inventory cost card assuming the business maintains a perpetual inventory system and calculates the cost of
goods sold and ending inventory using LIFO.
Purchases
Cost of
Goods Sold
Inventory
Date
Qty.
Unit
Cost
Total
Cost
Qty.
Unit
Cost
Total
Cost
Qty.
Unit
Cost
Total
Cost
Balances
139. Beginning inventory, purchases, and sales data for widgets are as follows:
April 3
Inventory
15 units
@
$30
11
Purchase
12 units
@
$27
14
Sale
18 units
21
Purchase
7 units
@
$25
25
Sale
10 units
Chapter 6 – Inventories
Complete the inventory cost card assuming the business maintains a perpetual inventory system and calculates the cost of
goods sold and ending inventory using FIFO.
Purchases
Cost of
Goods Sold
Inventory
Date
Qty.
Unit
Cost
Total
Cost
Qty.
Unit
Cost
Total
Cost
Qty.
Unit
Cost
Total
Cost
Balances
140. Beginning inventory, purchases, and sales data for widgets are as follows:
April 3
Inventory
15 units
@
$30
11
Purchase
12 units
@
$27
14
Sale
18 units
21
Purchase
7 units
@
$25
25
Sale
10 units
Chapter 6 – Inventories
Complete the inventory cost card assuming the business maintains a perpetual inventory system and calculates the cost of
goods sold and ending inventory using LIFO.
Purchases
Cost of Goods Sold
Inventory
Date
Qty.
Unit
Cost
Total
Cost
Qty.
Unit
Cost
Total
Cost
Qty.
Unit
Cost
Total
Cost
Balances
141. The units of an item available for sale during the year were as follows:
January 10
Inventory
27 units @ $90
February 27
Purchase
54 units @ $98
July 11
Purchase
63 units @ $106
November 13
Purchase
36 units @ $115
There are 50 units of the item in the physical inventory at December 31. The periodic inventory system is used.
Determine the ending inventory cost by (a) the first-in, first–out method, (b) the last-in, first-out method, and (c) the
average cost method. Show your work.
Chapter 6 – Inventories
LEARNING OBJECTIVES:
142. The units of an item available for sale during the year were as follows:
January 11
Inventory
60 units @ $145
February 27
Purchase
90 units @ $150
November 21
Purchase
75 units @ $154
There are 48 units of the item in the physical inventory at December 31. The periodic inventory system is used.
Determine the inventory cost by (a) the first-in, first-out method, (b) the last-in, first-out method, and (c) the average cost
method. Show your work.
LEARNING OBJECTIVES:
Chapter 6 – Inventories
143. The units of Manganese Plus available for sale during the year were as follows:
Mar. 1
Inventory
16 units
@ $30
$ 480
June 16
Purchase
30 units
@ $35
1,050
Nov. 28
Purchase
45 units
@ $39
1,755
91 units
$3,285
There are 15 units of the product in the physical inventory at November 30. The periodic inventory system is
used. Determine the inventory cost by (a) FIFO, (b) LIFO, and (c) average cost methods.
(a) 15 units @ $39 = $585
(b) 15 units @ $30 = $450
(c) $3,285/91 = $36.10 per unit;
15 units @ $36.10 = $541.50
144. Complete the chart, indicating whether LIFO or FIFO would give the highest and lowest amounts for each item,
assuming a period of increasing costs.
Highest Amount
Lowest Amount
Cost of goods sold
Gross profit
Net income
Ending inventory
Cost of goods sold
Gross profit
Net income
Ending inventory
Chapter 6 – Inventories
145. The units of Manganese Plus available for sale during the year were as follows:
Mar. 1
Inventory
16 units
@ $30
$ 480
June 16
Purchase
30 units
@ $35
1,050
Nov. 28
Purchase
45 units
@ $39
1,755
91 units
$3,285
There are 15 units of the product in the physical inventory at November 30. The periodic inventory system is
used. Determine the difference in gross profit between the LIFO and FIFO inventory cost systems.
Difference
146. Applying the lower of cost or market to each item of inventory, what should the total inventory value be for the
following items?
Item
Inventory
Quantity
Cost per
Unit
Market
value
per Unit
Total
Cost
Total
Market
A
300
$15.00
$14.50
$4,500
$4,350
B
200
$14.00
$15.00
$2,800
$3,000
C
100
$17.00
$17.50
$1,700
$1,750
$14.50
$15.00
$17.50
Chapter 6 – Inventories
147. Determine the total value of the merchandise using net realizable value.
Item
Quantity
Selling Price
Commission
Doll
10
$7
$2
Horse
5
9
3
Total
148. During the taking of its physical inventory on December 31, Almond Supplies Company incorrectly counted its
inventory as $545,000 instead of the correct amount of $554,000. Indicate the effects of the misstatement on Almond
Supplies Company’s balance sheet and income statement for the year ended December 31.
Chapter 6 – Inventories
149. While taking a physical inventory, a company counts its inventory as less than the actual amount on hand. How will
this error affect the income statement?
150. On the basis of the following data, determine the value of the inventory at the lower of cost or market. Apply lower
of cost or market to each inventory item. Show your work.
Item
Inventory Quantity
Unit Cost Price
Unit Market Price
Product C
300
$ 6
$ 5
Product D
420
12
14
Chapter 6 – Inventories
151. On the basis of the following data, determine the value of the inventory at the lower of cost or market. Apply lower
of cost or market to each inventory item. Show your work.
Item
Inventory Quantity
Unit Cost Price
Unit Market Price
Gear X
175
$33
$29
Gear Y
225
27
28
Gear X
Gear Y
LEARNING OBJECTIVES:
152. The following data were taken from the annual reports of Big Bang Inc., a manufacturer of fireworks, and Orange
Inc., a manufacturer of computers.
Big Bang, Inc.
Orange, Inc.
Cost of goods sold
$830,000
$11,540,000
Inventory, end of year
190,000
320,000
Inventory, beginning of year
240,000
290,000
(a) Determine the (1) inventory turnover and (2) number of days’ sales in inventory for Big Bang and Orange.
Round your answers to two decimal places.
(b) How would you expect these measures to compare between the companies? Why?
Chapter 6 – Inventories
(a) 1.
Inventory Turnover:
Big Bang, Inc.: 3.86 {$830,000/[($190,000 + $240,000)/2]}
Orange, Inc.: 37.84 {$11,540,000/[($320,000 + $290,000)/2]}
(a) 2.
Number of Days’ Sales in Inventory:
Big Bang, Inc.
Ave. Inv.: ($190,000 + $240,000)/2 = $215,000
Ave. Daily COGS: $830,000/365 = $2,274
$215,000/2,274 = 94.55 days
Orange, Inc.
Ave. Inv.: ($320,000 + $290,000)/2 = $305,000
Ave. Daily COGS: $11,540,000/365 = $31,616
$305,000/$31,616 = 9.65 days
expected to be higher than Orange’s.
153. Based on the following data, calculate the estimated cost of the inventory on March 31 using the retail method.
Cost
Retail
March 1
Inventory
$225,000
$357,600
March 1–31
Purchases (net)
454,245
612,750
March 1–31
Sales
835,000
March 1
Inventory
March 1–31
Purchases (net)
Merchandise available for sale
$679,245
$970,350
March 1–31
Sales
Inventory (at retail)