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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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Inventory Management
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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. Read More
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