Level 1
Chapter 16 – Section I – Exercise 3
Calculate the total number of units available for sale and the cost of goods available
for sale from the following inventory of oil filters for Advance Auto Parts:
Date
Units
Purchased
Cost per
Unit
Total
Cost
Advance Auto Parts
Oil Filter Inventory
Level 2
Chapter 16 – Section I – Exercise 4
When the merchandise manager of Advance Auto Parts took physical inventory of
the oil filters on December 31, it was found that 550 remained in inventory.
NOTE: use data and results from Exercise 3
a. Calculate the dollar value of the 550 oil filters by using FIFO.
Units Cost/Unit Total
b. Calculate the dollar value of the 550 oil filters by using LIFO.
Units Cost/Unit Total
c. Calculate the dollar value of the 550 filters by using the average cost method.
Total filters available = 1110
Level 2
Chapter 16 – Section I – Exercise 6
The following data represent the inventory figures for 55-gallon tanks at Something’s
Fishy:
Something’s Fishy
55-Gallon Fish Tanks Inventory
Amount
1-Jan Beginning Inventory 42 units @ $38.00 $1,596.00
12-Mar Purchase 80 units @ $36.50 $2,920.00
9-Jul Purchase 125 units @ $39.70 $4,962.50
2-Sep Purchase 75 units @ $41.75 $3,131.25
Fish tanks available for sale 322 Cost of tanks available for sale $12,609.75
a. How many fish tanks did Something’s Fishy have available for sale?
b. What is the total cost of the tanks available for sale?
c. If physical inventory on December 31 was 88 tanks on hand, what is
the value of those tanks by using FIFO?
Units Cost / Unit Total
d. What is the value of the 88 tanks by using LIFO?
Units Cost / Unit Total
e. What is the value of the 88 tanks by using the average cost method?
Note: Use Excel’s Round function to round your average cost to the nearest cent.
Level 2
Chapter 16 – Section II – Exercise 2
Using the retail method, estimate the value of the ending inventory at cost on September
30 from the following information for Scandinavian Furniture Designs, Inc. Round the
cost ratio to the nearest tenth percent.
Note: Use Excel’s Round function to round the decimal result for your cost ratio to the
nearest 1/1000th. This will round the cost ratio to the nearest tenth percent.
Scandinavian Furniture Designs, Inc.
September 1 – September 30
Cost Retail
Beginning Inventory, Sept. 1 150,000.00 450,000.00
Level 1
Chapter 16 – Section II – Exercise 5
Omni Fitness Equipment, Inc., maintains a gross margin of 55% on all its weight
training products. In April, Precision had a beginning inventory of $146,000, net pur-
chases of $208,000, and net sales of $437,000. Use the gross profit method to estimate
the cost of ending inventory.
Beginning inventory = $146,000.00
Level 1
Chapter 16 – Section II – Exercise 8
You are the warehouse manager for Discovery Kitchen Supplies. On a Sunday in May,
you receive a phone call from the owner. He states that the entire building and contents
were destroyed by fire. For the police report and the insurance claim, the owner has
asked you to estimate the value of the lost inventory. Your records, which luckily were
backed up on the hard drive of your home computer, indicate that at the time of the fire
the net sales to date were $615,400 and the purchases were $232,600. The beginning
inventory, on January 1, was $312,000. For the past 3 years, the company has operated at
a gross margin of 60%. Use the gross profit method to calculate your answer.
Beginning Inventory = $312,000
Level 1
Chapter 16 – Section III – Exercise 11
The Gourmet’s Delight, a cooking equipment wholesaler, had cost of goods sold of
$458,900 for the year. The beginning inventory at cost was $83,600, and the ending
inventory at cost was $71,700.
a. What is the average inventory at cost?
b. What is the inventory turnover, rounded to the nearest tenth?
Level 2
Chapter 16 – Section III – Exercise 12
Riverside Industries had cost of goods sold of $359,700 for the year. The beginning
inventory at cost was $73,180 and the ending inventory at cost was $79,500.
a. What is the average inventory at cost?
b. What is the inventory turnover, rounded to the nearest tenth?
Level 3
Chapter 16 – Section III – Exercise 14
Kwik-Mix Concrete Corporation had cost of goods sold for the year of $1,250,000. The
beginning inventory at cost was $135,000, and the ending inventory at cost amounted
to $190,900. The inventory turnover rate published as the industry standard for a
business of this size is 9.5 times.
a. Calculate the average inventory and actual inventory turnover rate for the company.
b. If the turnover rate is less than 9.5 times, calculate the target average inventory needed
to theoretically come up to industry standards.
Level 2
Chapter 16 – Assessment Test – Exercise 5
Determine the value of the following inventory for Iberia Tile by using the
lower-of-cost-or-market rule.
Unit Price
Description
Quantity
in Square
Cost Market
Valuation
Basis
Amount
Level 3
Chapter 16 – Assessment Test – Exercise 7
On July 24, a tornado destroyed Astro Wholesaler’s main warehouse and all its
contents. Company records indicate that at the time of the tornado the net sales
to date were $535,100 and the purchases were $422,900. The beginning inventory,
on January 1, was $319,800. For the past 3 years, the company has maintained
a gross margin of 35%. Use the gross profit method to estimate the inventory loss
for the insurance claim.
Beginning inventory = $319,800.00
Level 3
Chapter 16 – Assessment Test – Exercise 14
You are the chief accountant of Pan American Industries, Inc. In anticipation of the
upcoming annual stockholders meeting, the president of the company asked you to
determine the effect of the FIFO, LIFO, and average inventory valuation methods on
the company’s income statement.
Beginning inventory, January 1, was 10,000 units at $5.00 each. Purchases during
the year consisted of 15,000 units at $6.00 on April 15, 20,000 units at $7.00 on
July 19, and 25,000 units at $8.00 on November 2.
a. If ending inventory on December 31 was 40,000 units, calculate the value of this
inventory by using the three valuation methods:
b. Complete the comparative income statement for the year by using the following
information and the format below:
FIFO LIFO Average Cost
Net sales $360,000 $360,000 $360,000
Beginning inventory 50,000 50,000 50,000
c. Which inventory method should be used if the objective is to pay the least amount of taxes?
Pan American Time Industries, Inc.
Comparative Income Statement
d. Which method should be used if the objective is to show the greatest amount of profit
to the shareholders in the annual report?