QUESTION 1: Perpetual Inventory System- LIFO, FIFO AND AVCO. Overton Company uses a perpetual inventory system for its single product. Its beginning inventory, purchases and sales during calendar year 2021follow. Date Activity Units Acquired at Cost Units Sold at Retail Unit Inventory Jan 1 Beg. Inventory 400 units @ $14 = $ 5,600 400 units Jan 15 Sale 200 units @ $ 30 200 units March 10 Purchase 200 units @ $ 15 = $ 3,000 400 units April 1 Sale 200 units @ $ 30 200 units May 9 Purchase 300 units @ $ 16 = $ 4,800 500 units Sept 22 Purchase 250 units @ $ 20 = $ 5,000 750 units Nov 1 Sale 300 units @ $ 35 450 units Nov 28 Purchase 100 units @ $ 21 550 units Totals 1,250 units $ 20,500 700 units If the company had used the FIFO inventory costing method, cost of goods sold under FIFO would have been $ 10,200.00. Management wants a report that shows how changing from FIFO to another method would change net income. Prepare a table showing (1) the amount by which cost of goods sold under LIFO and AVCO is different from the FIFO cost of goods sold and ( 2) the effect on net income when LIFO and AVCO are used instead of FIFO. When costs are rising, what is the effect of the FIFO inventory valuation approach on cost of goods sold, gross profit and net income? Why?

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter6: Cost Of Goods Sold And Inventory

Section: Chapter Questions

Problem 50E: Inventory Costing Methods Crandall Distributors uses a perpetual inventory system and has the...

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QUESTION 1: Perpetual Inventory System- LIFO, FIFO AND AVCO.

Overton Company uses a perpetual inventory system for its single product. Its beginning inventory, purchases and sales during calendar year 2021follow.

Date	Activity	Units Acquired at Cost	Units Sold at Retail	Unit Inventory
Jan 1	Beg. Inventory	400 units @ $14 = $ 5,600		400 units
Jan 15	Sale		200 units @ $ 30	200 units
March 10	Purchase	200 units @ $ 15 = $ 3,000		400 units
April 1	Sale		200 units @ $ 30	200 units
May 9	Purchase	300 units @ $ 16 = $ 4,800		500 units
Sept 22	Purchase	250 units @ $ 20 = $ 5,000		750 units
Nov 1	Sale		300 units @ $ 35	450 units
Nov 28	Purchase	100 units @ $ 21		550 units
Totals		1,250 units $ 20,500	700 units

If the company had used the FIFO inventory costing method, cost of goods sold under FIFO would have been $ 10,200.00. Management wants a report that shows how changing from FIFO to another method would change net income. Prepare a table showing (1) the amount by which cost of goods sold under LIFO and AVCO is different from the FIFO cost of goods sold and ( 2) the effect on net income when LIFO and AVCO are used instead of FIFO.
When costs are rising, what is the effect of the FIFO inventory valuation approach on cost of goods sold, gross profit and net income? Why?

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