Dymac Appliances uses the periodic inventory system. Details regarding the inventory of appliances

Dymac Appliances uses the periodic inventory system. Details regarding the inventory of appliances at January 1, purchases invoices during the next 12 months, and the inventory 

count at December 31 are summarized as follows:

Purchases Invoices Model Inventory,   November 1 1st 2nd 3rd Inventory Count, October 31 A10 __  4 at $  64  4 at $   70  4 at $ 76 6 B15  8 at $176  4 at  158  3 at  170  6 at  184 8 E60  3  at   75  3 at    65 15 at   68  9 at   70 5 G83  7  at   242  6 at    250  5 at    260 10 at   259 9 J34 12  at  240 10 at   246 16 at  267 16 at  270 15 M90  2  at   108  2 at   110  3 at   128  3 at   130 5 Q70  5  at   160  4 at   170  4 at   175  7 at   180 8

Instructions

1. Determine the cost of the inventory on December 31 by the first-in, first-out method. Present data in columnar form, using the following headings:

Model Quantity Unit Cost Total Cost

If the inventory of a particular model comprises one entire purchase plus a portion of another purchase acquired at a different unit cost, use a separate line for each purchase.

2. Determine the cost of the inventory on December 31 by the last-in, first-out method, following the procedures indicated in (1).

3. Determine the cost of the inventory on December 31 by the weighted average cost method, using the columnar headings indicated in (1).

4.  Discuss which method (FIFO or LIFO) would be preferred for income tax purposes in periods of (a) rising prices and (b) declining prices.

Answer:

1. First-In, First-Out Method

Model Quantity Unit Cost Total Cost

A10 4 $ 76 $ 304

2 70 140

B15 6 184 1,104

2 170 340

E60 5 70 350

G83 9 259 2,331

J34 15 270 4,050

M90 3 130 390

2 128 256

Q70 7 180 1,260

1 175 175

Total$10,700

2. Last-In, First-Out Method

Model Quantity Unit Cost Total Cost

A10 4 $ 64 $ 256

2 70 140

B15 8 176 1,408

E60 3 75 225

2 65 130

G83 7 242 1,694

2 250 500

J34 12 240 2,880

3 246 738

M90 2 108 216

2 110 220

1 128 128

Q70 5 160 800

3 170 510

Total$9,845

3. Weighted Average Cost Method

Quantity Unit Cost* Total Cost

6 $ 70 $ 420

8 174 1,392

5 69 345

9 253 2,277

15 258 3,870

5 121 605

8 172 1,376

* Computations of unit costs:

A10: $70 = [(4 × $64) + (4 × $70) + (4 × $76)] ÷ (4 + 4 + 4)

B15: $174 = [(8 × $176) + (4 × $158) + (3 × $170) + (6 × $184)] ÷ (8 + 4 + 3 + 6)

E60: $69 = [(3 × $75) + (3 × $65) + (15 × $68) + (9 × $70)] ÷ (3 + 3 + 15 + 9)

G83: $253 = [(7 × $242) + (6 × $250) + (5 × $260) + (10 × $259)] ÷ (7 + 6 + 5 + 10) 

J34: $258 = [(12 × $240) + (10 × $246) + (16 × $267) + (16 × $270)] ÷ (12 + 10 + 16 + 16)

M90: $121 = [(2 × $108) + (2 × $110) + (3 × $128) + (3 × $130)] ÷ (2 + 2 + 3 + 3)

Q70: $172 = [(5 × $160) + (4 × $170) + (4 × $175) + (7 × $180)] ÷ (5 + 4 + 4 + 7)

4. a. During periods of rising prices, the LIFO method will result in a lower cost 

of inventory, a greater amount of cost of merchandise sold, and less net

income than the other two methods. For Dymac Appliances, the LIFO method 

would be preferred for the current year because it would result in less income

tax.

b. During periods of declining prices, the FIFO method will result in less net 

income and would be preferred for income tax purposes.