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Inventory Management - Assignment Example

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The lower of cost or market rule directs that businesses should record the cost of inventories at the lower cost between the original cost of the inventory and the prevailing market price. …

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Subject: Finance & Accounting
Type: Assignment
Level: Ph.D.
Pages: 1 (250 words)
Downloads: 3
Author: ethylherzog

Extract of sample "Inventory Management"

Inventory Management al Affiliation) Problem One a) FIFO Method March 3000 units @ $8.00 = $24000 March 8 5000 units @ $8.40 = $42000 Sales: March 14 4000 units @ $14.00 = $ 56000 C.O.G: March 14 3000 units @ $8.00 = $24000 1000 units @ $8.40 =$8400 Total: $32400 Inventory balance: 4000 units @8.40 = $33600 March 18: 6000 units @ 8.20 = $49200 Sales: March 25 7000 units @ $14.00 = $98000 C.O.G: March 25 4000 units @ $8.

40 = $33600 3000 units @ $8.20 = $24600 Total: $58200 Inventory Balance: 3000 units @ 8.20 = $24600 Therefore; Inventory balance as at March 2016 is $24600 Cost of Goods for the period ended March 2016 is $(32400 + 58200) = $90600 LIFO Method: March 1 3000 units @ 8.00 = $24000 March 8 5000 units @ 8.40 = $42000 Sales: March 14 4000 units @ 14.00 = $56000 C.O.G: 4000 units @ 8.40 = $33600 March 18 6000 units @ 8.

20 = $49200 Sales: March 25 7000 units @ 14.00 = $98000 C.O.G: 6000 units @ 8.20 = $49200 1000 units @ 8.40 = $8400 Total: = $57600 Inventory balance: 3000 units @ 8.00 = $24000 Inventory balance as at March 2016 is $24000 Cost of Goods for the period ended March 2016 is $(57600 + 33600) = $91200 Average Costing Method: March 1 3000 units @ $8.00 = $24000 March 8 5000 units @ $8.40 = $42000 Total: 8000 units @ $8.

25 = $66000 Sales: March 14 4000 units @ $14.00 = $56000 C.O.G: 4000 units @ $8.25 = $33000 Inventory balance 4000 units @ 8.25 = $33000 March 18 6000 units @ 8.20 = $49200 Total: 10000 units @ 8.22 = $82200 Sales: March 25 7000 units @ 14.00 = $98000 7000 units @ 8.22 = $57540 Inventory balance 3000 units @ 8.22 = $24660 Inventory balance as at March 2016 is $24660 C.O.G for the period ended March 2016 is $(33000 + 57540) = $90540 b) Gross Profit: Sales: (4000 units * $14.00) + (7000 units * $14.00) = $154000 Gross Profit under FIFO: = Sales – C.O.G = $154000 - $90600 = $63400 Gross Profit under LIFO: = $154000 - $91200 = $62800 Gross Profit under Average Costing Method: = $154000 - $90540 =$63460 Problem Two: a) Cost Market Cost Allowance Standard 181000 152000 30000 Accordian 254000 249800 4200 Roll top 210000 214000 4000 Total $645000 $463800 $38200 Gain = Selling price – Cost of goods = $649800 –$(645000 - 38200) = $42600 b) The lower of cost or market rule directs that businesses should record the cost of inventories at the lower cost between the original cost of the inventory and the prevailing market price.

The current market of inventory should be lower than the net realizable value of the inventory though it should not be lower than the net realizable value less the normal profits.

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