Problems - Inventory Cost Flow (VALIX)

1.) FIFO - Periodic

UNITS UNIT COST ENDING
Jan. 20 Purchase 2,500 300 750,000
Jan. 25 Purchase 2,000 400 800,000
4,500 1,550,000

2.) WA - Periodic
TGAS ₱2,850,000
= = ₱228.00
# of units (6K+2K+2.5K+2K)

Beg., inventory 900,000

add: Purchases 1,950,000
TGAS 2,850,000
less: Ending inventory (4.5K x P228) 1,026,000
COGS 1,824,000

ANOTHER APPROACH
 3.) Specific Identification

Lot 3 6,000 120 720,000

Lot 4 9,000 100 900,000
15,000 1,620,000
COGS (4855K - 1620K) 3,235,000

1.) FIFO - periodic

UNITS UNIT COST ENDING
Lot no. 4 500 100 50,000
Lot no. 5 14,500 90 1,305,000
15,000 1,355,000

Beg., inventory (10K x P80) 800,000

add: Purchases 4,055,000
less: Ending inventory 1,355,000
COGS 3,500,000

2.) WA - periodic
TGAS ₱4,855,000
= = ₱97.10
# of units (2K+8K+6K+9.5K+14.5K)

Beg., inventory 800,000

add: Purchases 4,055,000
TGAS 4,855,000
less: Ending inventory (50K x P97.1) 1,456,500
COGS 3,398,500
1 FIFO - periodic
UNITS UNIT COST ENDING
Dec. 17 Purchase 10,000 45 450,000
Dec. 22 Purchase 20,000 43 860,000
30,000 1,310,000

Beg., inventory (10K x P52) 520,000

add: Purchases 5,060,000
less: Ending inventory 1,310,000
COGS 4,270,000

2 WA - periodic
TGAS ₱5,580,000
= = ₱46.50
# of units 120000

Beg., inventory 520,000

add: Purchases 5,060,000
TGAS 5,580,000
less: Ending inventory (30K x P46.5) 1,395,000
COGS 4,185,000
1.) FIFO - perpatual

2.) WA - perpetual (Moving Ave.)

UNITS UNIT COST Total Cost COGS
Mar. 1 Beginning Balance 1,000 270.0 270,000 270,000
Mar. 6 Purchases 3,000 250.0 750,000 750,000
Total 4,000 255.0 1,020,000
Mar. 9 Sales - 2,000 255.0 - 510,000
Balances 2,000 255.0 510,000
Mar. 14 Purchases 6,000 280.0 1,680,000 1,680,000
Total 8,000 273.8 2,190,000
Mar. 25 Purchases 4,000 210.0 840,000 840,000
Total 12,000 252.5 3,030,000
Mar. 31 Sales - 8,000 252.5 - 2,020,000
Ending Inventory 4,000 252.5 1,010,000 - 1,010,000
COGS (510K + 2020K) 2,530,000 2,530,000
GROSS INCOME

UNITS UNIT COST ENDING-2018

2018 Purchase 3,000 60 180,000
(5K-4K+9K-7K) 3,000 180,000

UNITS UNIT COST ENDING-2019

2019 Purchase 6,000 75 450,000
(3K + 15K - 12K) 6,000 450,000

Beginning inventory (3K x 60) 180,000

add: Purchases 1,125,000
TGAS 1,305,000
less: Ending inventory 450,000
COGS 855,000

Sales 1,200,000
Less: COGS 855,000
Gross Income 345,000
a. FIFO - periodic
UNITS UNIT COST ENDING
Oct. 1 Purchase 15,000 60 900,000
15,000 900,000

Beg., inventory 400,000

add: Purchases 2,250,000
TGAS 2,650,000
less: Ending inventory - 900,000
COGS 1,750,000

b. WA - periodic
TGAS ₱2,650,000
= = ₱53.00
# of units 50000

Beg., inventory 400,000

add: Purchases 2,250,000
TGAS 2,650,000
less: Ending inventory (15K x P53) 795,000
COGS 1,855,000
c. WA - perpetual (Moving average)
UNITS UNIT COST Total Cost COGS
Jan. 1 Beginning balance 10,000 40.00 400,000 400,000
Jan. 31 Sales - 5,000 40.00 - 200,000
Balance 5,000 40.00 200,000
Apr. 1 Purchase 15,000 50.00 750,000 750,000
Total 20,000 47.50 950,000
Jul. 31 Sales - 18,000 47.50 - 855,000
Balance 2,000 47.50 95,000
Oct. 1 Purchase 25,000 60.00 1,500,000 1,500,000
Total 27,000 59.07 1,595,000
Dec. 31 Sales - 12,000 59.07 - 708,889
Ending Inventory 15,000 59.07 886,111 - 886,111
COGS 1,763,889 1,763,889
*due to rounding off
FIFO - periodic
UNITS UNIT COST ENDING
Oct. 1 Purchase 300 10,000 3,000,000
300 3,000,000

Beginning inventory 1,500,000

add: Purchases 7,700,000
less: Ending inventory - 3,000,000
COGS 6,200,000

WA - periodic
TGAS 9,200,000
= = 9200
# of units 1,000

Beg., inventory 1,500,000

add: Purchases 7,700,000
TGAS 9,200,000
less: Ending inventory - 2,760,000
COGS 6,440,000
WORKING BACK PROBLEMS

Sales 6,000,000
less: COGS (bal) 3,600,000
Gross profit 2,400,000

1,000 60 60,000
14,000 62 868,000
15,000 928,000

Inventory - July 1 (workback) 1,354,000

add: Purchases 3,174,000
TGAS 4,528,000
less: Ending inventory 928,000
COGS 3,600,000
WORKING BACK PROBLEMS

TGAS 1,452,100
= = 4.80
# of units 302,521 (288K / 60K)
(1,452,100 / P4.8)
Beginning inventory 410,000
add: Purchases 1,042,100
TGAS 1,452,100
3.) less: Ending inventory (1,452,100 - 1,164,100) 288,000
COGS 1,164,100

1.) # of units in July 1 inventory (410K / P4) 102,500

2.) Beginning inventory (in units) 102,500

add: Purchases (in units) 200,000
TGAS 302,500
less: Ending inventory (in units) 60,000
Units sold 242,500
FIFO - periodic
UNITS UNIT COST ENDING
Dec. 15 Purchase 2,000 360 720,000
Dec. 24 Purchase 3,500 300 1,050,000
5,500 1,770,000

WA - periodic
TGAS 4,350,000
= = 290
# of units 15,000

Beginning inventory 1,680,000

add: Purchases 2,670,000
TGAS 4,350,000
less: Ending inventory 1,595,000
COGS 2,755,000
INCREMENTAL LAYERS

Average unit cost for 2019

(135 + 140) / 2 138

Average unit cost for 2020

(145 + 155 + 160) / 3 153
 UNITS AVE. UNIT COST TOTAL COST
1.) Inventory - Dec. 31, 2019 11,000 138 1,518,000 * (135 + 140) / 2

2.) Inventory - Dec. 31, 2018 14,000 1,480,000

add: Purchases * (1656K / 138) 12,000 138 1,656,000 (648K + 1008K)
TGAS 26,000 3,136,000
less: Ending inventory 11,000 - 1,518,000
Inventory used 15,000 1,618,000

3.) Inventory - Dec. 31, 2020 15,000 153 2,295,000 * (145 + 155 + 160) / 3

4.) Inventory - Dec. 31, 2019 11,000 1,518,000

add: Purchases 20,000 153 3,060,000
TGAS 31,000 4,578,000
less: Ending inventory - 15,000 - 2,295,000
Inventory used 16,000 2,283,000
INVENTORY COST METHOD USED

28,000 UNITS SOLD

UNITS UNIT COST ENDING

Sept. 5 Purchase 2,000 43.0 86,000
Sept. 25 Purchase 12,000 42.5 510,000
(42K - 28K) 14,000 596,000

Beginning inventory 400,000

add: Purchases 1,353,500
less: Ending inventory - 596,000
COGS 1,157,500 SCHEDULE 2

TGAS 1,753,500
= = 41.75
# of units 42,000

Beginning inventory 400,000

add: Purchases 1,353,500
TGAS 1,753,500
less: Ending inventory (workback) 584,500
COGS 1,169,000 SCHEDULE 1
FIFO - periodic
UNITS UNIT COST ENDING
Jun. 21 Purchase 1,500 330 495,000
Jun. 30 Purchase 2,500 313 782,500
4,000 1,277,500

WA - periodic
TGAS 8,347,500
= = 315.00
# of units 26,500

Beginning inventory -
add: Purchases 8,347,500
TGAS 8,347,500
less: ending inventory 1,260,000
COGS 7,087,500
CHANGE IN ACCOUNTING POLICY

NOTE:
* if ending inventory is understated, COGS is overstated,
thus, deduct
** if end inventory is understated, beg. invty is understated,
thus, COGS is understated

2019 2020 2021

COGS - average 1,500,000 2,000,000 2,400,000
Understatement of inventory
2019 (420K - 270K) - 150,000 150,000
2020 (500K - 300K) - 200,000 200,000
2021 (650K - 380K) - 270,000
COGS - FIFO 1,350,000 1,950,000 2,330,000

Sales 3,000,000 4,000,000 4,800,000

COGS 1,350,000 1,950,000 2,330,000
Gross income 1,650,000 2,050,000 2,470,000
Expenses 800,000 900,000 1,000,000
Net income 850,000 1,150,000 1,470,000

NOTE:
* if ending inventory is understated, COGS is overstated, thus, Net income is understated
** if end inventory is understated, beg. invty is understated, thus, COGS is understated, and Net income is overstated
Proof:
Net income - average 700,000 1,100,000 1,400,000
Understatement of inventory
2019 (420K - 270K) 150,000 - 150,000
2020 (500K - 300K) 200,000 - 200,000
2021 (650K - 380K) 270,000
Net income - FIFO 850,000 1,150,000 1,470,000
FIFO - periodic
UNITS UNIT COST ENDING
Jan. 9 Purchase 250 540 135,000
Jan. 29 Purchase 500 600 300,000
750 435,000

WA -periodic
TGAS 1,360,000
= = 544.00
# of units 2,500

Beginning inventory 250,000

add: Purchases 1,110,000
TGAS: 1,360,000
less: Ending inventory 408,000
COGS 952,000
RELATIVE SALES PRICE METHOD

Purchases 26,850,000
Improvements 43,500,000
Total cost 70,350,000

Group Sales Price FRACTIONS Allocated No. of lots Cost per lot Lots unsold Cost
1 60,000,000 4/7 40,200,000 20 2,010,000 5 10,050,000
2 25,000,000 1/4 16,750,000 10 1,675,000 4 6,700,000
3 20,000,000 1/5 13,400,000 10 1,340,000 3 4,020,000
105,000,000 70,350,000 5,025,000 20,770,000

RELATIVE SALES PRICE METHOD

Purchase price 18,000,000

Appraiser 500,000
Development 41,500,000
Total cost 60,000,000

Sales Price Fractions Allocated

Highland 20,000,000 1/5 12,000,000
Midland 30,000,000 2/7 18,000,000
Lowland 50,000,000 1/2 30,000,000
100,000,000 60,000,000
COMPREHENSIVE

TGAS 1,056,000
32.00
# of units 33,000
AYE Company
Beginning inventory 240,000
Quantities on hand
Jan. 1 8,000
Dec. 31 10,000
Purchases (25K units) 816,000
TGAS 1,056,000
End inventory (32 x 10K) 320,000

BEE Company
Purchases 10,000,000
Cost of leveling the land 2,500,000
Total cost 12,500,000
Class A 25 400,000
Class B 30 300,000
Class C 10 100,000
Unsold lots:
Class A 15
Class B 6
Class C 3

CEE Company
Ending inventory - unadj. 1,960,000
Sold Jan. 5, FOB Shipping p. -
Unrecorded inventory 900,000
Error - 190,000
Sold FOB Shipping point - 700,000
Unrecorded inventory 230,000
Ending inventory - adjusted 2,200,000

CLASS Sales Price Fractions Allocated No of lots Cost per lot Unsold lots Cost
Class A 10000000 1/2 6,250,000 25 250,000 15 3,750,000
Class B 9000000 4/9 5,625,000 30 187,500 6 1,125,000
Class C 1000000 0 625,000 10 62,500 3 187,500
20000000 12,500,000 500,000 5,062,500
UNITS Unit cost ENDING
15,000 23 345,000
10,000 24 240,000
25,000 585,000 A.

FIFO - perpetual / periodic

UNITS Unit cost Ending
4500 73.50 330,750
4500 330,750 A.
FIFO - PERPETUAL (sales return)

FIFO - perpetual
TGAS 530,000 106
# of units 5,000

Beginning inventory -
add: Purchases 530,000
TGAS 530,000
less: Ending inventory 318,000 A.
COGS 212,000

UNITS Unit cost Total cost

40,000 5 200,000
- 35,000 5 - 175,000
5,000 5 25,000
20,000 8 160,000
25,000 7 185,000 B.
TGAs 1,825,000
# of units 1,000 1,825

Beginning inventory -
add: Purchases 1,825,000
TAGS 1,825,000
less: Ending inventory 365,000 D.
COGS 1,460,000

UNITS Unit cost Total cost

8,000 200 1,600,000
- 4,000 200 - 800,000
4,000 200 800,000
12,000 240 2,880,000
16,000 230 3,680,000 C.
 UNITS Unit cost Total cost
16,000 140.00 2,240,000
4,000 150.00 600,000
20,000 142.00 2,840,000
- 15,000 142.00 - 2,130,000
5,000 142.00 710,000
20,000 160.00 3,200,000
25,000 156.40 3,910,000
- 1,000 160.00 - 160,000
24,000 156.25 3,750,000
- 8,000 156.25 - 1,250,000
16,000 156.25 2,500,000
4,000 156.25 625,000
20,000 156.25 3,125,000
30,000 150.00 4,500,000
50,000 152.50 7,625,000 A.

Purchase price 12,000,000

Additional cost 3,000,000
Total cost 15,000,000

LOT CLASS Sales price Allocated

A 24,000,000 6,000,000 A.
B 16,000,000 4,000,000
C 20,000,000 5,000,000
60,000,000 15,000,000
 Units Selling price Total Allocated Towels Inventory cost
Cost per towels
Class A (60K x 60%) 36,000 500 18,000,000 16,200,000 36,000 450 990,000
Class B (60K x 40%) 24,000 250 6,000,000 5,400,000 24,000 225 675,000
60,000 24,000,000 21,600,000 60,000 1,665,000 B.
* 60K x 360 * 16.2M / 36K ** 450 x 2200
** 5.4M / 24K *** 225 x 3000
FIFO - periodic
Units Unit cost Ending
90,000 8.5 765,000
90,000 765,000
* 90K + 75K + 120K - 195K

Beginning raw materials 630,000

add: Purchases 1,620,000
TGAS 2,250,000
less: ending inventory - 765,000
COGS 1,485,000 A.

Raw materials used 1,485,000

Direct labor 3,100,000
Manufacturing overhead 2,950,000
TMC 7,535,000 B.

TMC 7,535,000
add: WIP beg 700,000
total 8,235,000
less: WIP end - 720,000
Cost of goods manufactured 7,515,000 C.
FIFO - periodic
UNITS Unit cost Ending
3,000 60 180,000
14,000 55 770,000
17,000 950,000

Sales 6,000,000
COGS (SQUEEZED) 3,600,000
Gross profit 2,400,000

Beg., inventory 1,390,000

add: Purchases 3,160,000
TGAS 4,550,000
less: Ending inventory 950,000 D.
COGS 3,600,000

Inventory July 1 1,390,000 A.

Beginning units (SQUEEZED) 26,000 B.

add: units purchases 51,000
total units available for sales 77,000
less: ending units 17,000
Units sold 60,000