Inventory – Practice Problems
Problem #1:
During its first year of operations, Fulbright made the following purchases (listed in chronological order of
acquisition):
40 units at $100
70 units at $ 80
170 units at $ 60
Sales for the year totaled 270 units, leaving 10 units on hand at the end of the year.
Compute ending inventory using the FIFO method and LIFO.
Problem #2:
Inventory purchase and sales data are as follows. [Note: There was no inventory before the purchase made on
January 1.]
Purchased on January 1 -- 100 units, $9 cost per unit
Purchased on January 16 -- 300 units, $8 cost per unit
Purchased on January 25 -- 400 units, $7 cost per unit
Sold on January 31 -- 500 units, $10 selling price per unit
The company uses AVERAGE COST. Compute GROSS MARGIN for January.
Problem #3
Inventory records for Herb's Chemicals revealed the following: March 1, 20X9, inventory of 1,000 gallons @
$7.20 = $7,200
Purchases: March 10 600 gals @ $7.25
March 16 800 gals @ $7.30
March 23 600 gals @ $7.35
Sales: March 5 400 gals
March 14 700 gals
March 20 500 gals
March 26 700 gals
Compute ending inventory using the LIFO method assuming a perpetual inventory system is used.
Problem #4:
If Tanks-4-All had beginning inventory of $1,845, purchases made during the year of $3,500, and ending
inventory of $1,346 what is COGS for the year?
Problem #5:
The following information comes from the 20X7 General Motors (GM) Corporation annual report to
shareholders:
Inventories included the following for Automotive and Other Operations ($ in millions):
20X7 20X6
FIFO Inventory 16,362 15,429
Adjustment xxxxx 1,508
LIFO Inventory 14,939 xxxxx
Cost of Goods Sold in 20X7 = $166,259
What is the amount of the LIFO reserve in 20X7?
Problem #6:
Using the data below, compute NUMBER OF DAYS’ SALES IN INVENTORY. Note: If you need to compute
the average balance for any account, assume that the beginning-of-year balance is the same as the end-of-year
balance reported below.
Accounts Payable 210
Accounts Receivable 1,600
Capital Stock 120
Cash 50
Cost of Goods Sold 300
Inventory 190
Long-term Debt 1,820
Net Income 140
Property, Plant, and Equipment (net) 700
Retained Earnings 390
Sales 1,500
Market value of shares 3,000
Compute Number of Days’ Sales in Inventory.,
Problem #7:
The company reported the following inventory data for the month:
Beginning Inventory = 300 units @ $17.50
Purchases:
March 15 = 900 units @ $18.00
March 26 = 1,200 units @ $18.25
Units Remaining at Year End = 400
Compute cost of goods sold and ending inventory assuming LIFO inventory valuation. Assume that ALL
sales occurred on March 31.
Problem #8:
Shown below is activity for one of the products of Denver Office Equipment:
January 1 balance, 500 units @ $55 = $27,500
Purchases:
January 10: 500 units @ $60
January 20: 1,000 units @ $63
Sales:
January 12: 800 units
January 28: 750 units
Compute cost of goods sold and ending inventory under FIFO, LIFO and average cost. Assume a
perpetual inventory system is used.
Problem #9
Use the following data from the Joker Company to calculate the amounts below:
Date Transaction Quantity Price/Cost
1/1 Beginning inventory 2,000 10.00
1/3 Purchases 18,000 10.40
1/7 Sales (@ $26 per unit) 7,000
1/20 Purchases 6,000 11.00
1/22 Sales (@ $27 per unit) 16,000
1/30 Purchases 3,000 12.00
Assume Joker Company uses a perpetual inventory system. Calculate cost of goods sold and ending inventory
using (1) FIFO, (2) LIFO and (3) average cost. Round per unit cost to two decimal places.
Conceptual Questions:
1. During periods when costs are rising and inventory quantities are stable, cost of goods sold will be:
A. Higher under FIFO than LIFO.
B. Higher under FIFO than average cost.
C. Lower under average cost than LIFO.
D. Lower under LIFO than FIFO.
2. During periods when costs are rising and inventory quantities are stable, ending inventory will be:
A. Higher under LIFO than FIFO.
B. Lower under average cost than LIFO.
C. Higher under average cost than FIFO.
D. Higher under FIFO than LIFO.
3. Which of the following is a reason why the specific identification method may be considered ideal for
assigning costs to inventory and cost of goods sold?
A. The potential for manipulation of net income is reduced.
B. There is no arbitrary allocation of costs.
C. The cost flow matches the physical flow.
D. Able to use on all types of inventory.
4. Assuming no beginning inventory, what can be said about the trend of inventory prices if cost of goods
sold computed when inventory is valued using the FIFO method exceeds cost of goods sold when
inventory is valued using the LIFO method?
A. Prices decreased.
B. Prices remained unchanged.
C. Prices increased.
D. Price trend cannot be determined from information given.
5. An inventory pricing procedure in which the oldest costs incurred rarely have an effect on the ending
inventory valuation is:
A.FIFO.
B. LIFO.
C. Weighted Average.
D. None of the above.
ANSWERS
Problem #1:
During its first year of operations, Fulbright made the following purchases (listed in chronological order of
acquisition):
40 units at $100
70 units at $ 80
170 units at $ 60
Sales for the year totaled 270 units, leaving 10 units on hand at the end of the year.
Compute ending inventory using the FIFO method and LIFO.
FIFO ending inventory = 10 units $60 = $600.
LIFO ending inventory = 10 units at $100 = $1,000
Problem #2:
Inventory purchase and sales data are as follows. [Note: There was no inventory before the purchase made on
January 1.]
Purchased on January 1 -- 100 units, $9 cost per unit
Purchased on January 16 -- 300 units, $8 cost per unit
Purchased on January 25 -- 400 units, $7 cost per unit
Sold on January 31 -- 500 units, $10 selling price per unit
The company uses AVERAGE COST. Compute GROSS MARGIN for January.
Sales = 500 x $10 = $5,000
COGS = 500 x $7.625** = $3,813
Gross Margin = $5,000 - $3,813 = $1,187
**((100 x $9) + (300 x $8) + (400 x $7) ) / 800 =$7.625 per unit
Problem #3
Inventory records for Herb's Chemicals revealed the following: March 1, 20X9, inventory of 1,000 gallons @
$7.20 = $7,200
Purchases: March 10 600 gals @ $7.25
March 16 800 gals @ $7.30
March 23 600 gals @ $7.35
Sales: March 5 400 gals
March 14 700 gals
March 20 500 gals
March 26 700 gals
Compute ending inventory using the LIFO method assuming a perpetual inventory system is used.
Ending inventory = $7.20 x 500 = $3,600 + $7.30 x 200 = $1,460 = $5,060
Problem #4:
If Tanks-4-All had beginning inventory of $1,845, purchases made during the year of $3,500, and ending
inventory of $1,346 what is COGS for the year?
Problem #5:
The following information comes from the 20X7 General Motors (GM) Corporation annual report to
shareholders:
Inventories included the following for Automotive and Other Operations ($ in millions):
20X7 20X6
FIFO Inventory 16,362 15,429
Adjustment 1,423 1,508
LIFO Inventory 14,939 13,921
Cost of Goods Sold in 20X7 = $166,259
What is the amount of the LIFO reserve in 20X7?
1,423
Problem #6:
Using the data below, compute NUMBER OF DAYS’ SALES IN INVENTORY. Note: If you need to compute
the average balance for any account, assume that the beginning-of-year balance is the same as the end-of-year
balance reported below.
Accounts Payable 210 Long-term Debt 1,820
Accounts Receivable 1,600 Net Income 140
Capital Stock 120 Property, Plant, and Equipment (net) 700
Cash 50 Retained Earnings 390
Cost of Goods Sold 300 Sales 1,500
Inventory 190 Market value of shares 3,000
Compute NUMBER OF DAYS’ SALES IN INVENTORY.
Number of days' sales in inventory = 365 / (COGS / Avg. Inventory)
= 365 / (300 / (190 + 190 / 2) ) = 231.2 days
Problem #7:
The company reported the following inventory data for the month:
Beginning Inventory = 300 units @ $17.50
Purchases:
March 15 = 900 units @ $18.00
March 26 = 1,200 units @ $18.25
Units Remaining at Year End = 400
Compute cost of goods sold and ending inventory assuming LIFO inventory valuation. Assume that ALL
sales occurred on March 31.
During the month, there was a total of 2,400 units of inventory (300+900+1,200). Of these units, ending
inventory contained 400, and the remainder were sold during the year. Using LIFO, the most recently
purchased inventory is sold first, leaving the oldest units in ending inventory.
COGS = (1,200 x $18.25) + (800 x $18.00) = $36,300
Ending Inventory = (300 x $17.50) + (100 x $18.00) = $7,050
Problem #8:
Shown below is activity for one of the products of Denver Office Equipment:
January 1 balance, 500 units @ $55 = $27,500
Purchases:
January 10: 500 units @ $60
January 20: 1,000 units @ $63
Sales:
January 12: 800 units
January 28: 750 units
Compute cost of goods sold and ending inventory under FIFO, LIFO and average cost. Assume a
perpetual inventory system is used.
Units
Purchased Units Sold Price per Unit
1-Jan 500 $ 55 27,500
10-Jan 500 $ 60 30,000
12-Jan 800
20-Jan 1,000 $ 63 63,000
28-Jan 750
2,000 1,550 120,500
FIFO
12-Jan 500 $ 55 27,500
800 units sold 300 $ 60 18,000
800 45,500 CGS
28-Jan 200 $ 60 12,000
750 units sold 550 $ 63 34,650
750 46,650 CGS
92,150 Total CGS
450 63 28,350 Ending Inventory
120,500 Proof
LIFO
12-Jan 500 $ 60 30,000
800 units sold 300 $ 55 16,500
800 46,500 CGS
28-Jan 750 $ 63 47,250
750 units sold
93,750 Total CGS
200 55 11,000
250 63 15,750
26,750 Ending Inventory
120,500 Proof
Average Cost
Units
Purchased Units Sold Price per Unit
Inventory Available to sell
1-Jan 500 $ 55.00 27,500
10-Jan 500 $ 60.00 30,000
1,000 57,500
57.50 Cost per unit
Inventory Sold
12-Jan 800 46,000 CGS
Inventory Available to sell
Remaining after 1/12 sale
200 $ 57.50 11,500
20-Jan 1,000 $ 63.00 63,000
1,200 74,500
62.08 Cost per unit
Inventory Sold
28-Jan 750 46,562.50 CGS
92,563 Total CGS
Remaining inventory 450 62.08 27,938 Ending Inventory
120,500 Proof
Problem #9
Use the following data from the Joker Company to calculate the amounts below:
Date Transaction Quantity Price/Cost
1/1 Beginning inventory 2,000 10.00
1/3 Purchases 18,000 10.40
1/7 Sales (@ $26 per unit) 7,000
1/20 Purchases 6,000 11.00
1/22 Sales (@ $27 per unit) 16,000
1/30 Purchases 3,000 12.00
Assume Joker Company uses a perpetual inventory system. Calculate cost of goods sold and ending inventory
using (1) FIFO, (2) LIFO and (3) average cost. Round per unit cost to two decimal places.
FIFO 7-Jan 7,000 2,000 10.00 20,000
Sale 5,000 10.40 52,000
22-Jan 16,000 13,000 10.40 135,200
Sale 3,000 11.00 33,000
240,200 Total CGS
Ending 6,000 3,000 12.00 36,000
Inventory 3,000 11.00 33,000 Proof
69,000 EI 309,200
LIFO 7-Jan 7,000 7,000 10.40 72,800
Sale
22-Jan 16,000 6,000 11.00 66,000
Sale 10,000 10.40 104,000
242,800 Total CGS
Ending 6,000 2,000 10.00 20,000
Inventory 1,000 10.40 10,400
3,000 12.00 36,000 Proof
66,400 EI 309,200
Average Cost 2,000 10.00 20,000
18,000 10.40 187,200
20,000 207,200 10.36 Ave. Cost
7-Jan
Sale 7,000 10.36 72,520 CGS
13,000 10.36 134,680
6,000 11.00 66,000
19,000 200,680 10.56 Ave. Cost
22-Jan 16,000 10.56 168,960 CGS
Sale 241,480 Total CGS
3,000 10.56 31,680
Ending 3,000 12.00 36,000 Proof
Inventory 6,000 67,680 EI 309,160
Conceptual Questions
1. During periods when costs are rising and inventory quantities are stable, cost of goods sold will be:
A. Higher under FIFO than LIFO.
B. Higher under FIFO than average cost.
C. Lower under average cost than LIFO.
D. Lower under LIFO than FIFO.
2. During periods when costs are rising and inventory quantities are stable, ending inventory will be:
A. Higher under LIFO than FIFO.
B. Lower under average cost than LIFO.
C. Higher under average cost than FIFO.
D. Higher under FIFO than LIFO.
3. Which of the following is a reason why the specific identification method may be considered ideal for
assigning costs to inventory and cost of goods sold?
A. The potential for manipulation of net income is reduced.
B. There is no arbitrary allocation of costs.
C. The cost flow matches the physical flow.
D. Able to use on all types of inventory.
4. Assuming no beginning inventory, what can be said about the trend of inventory prices if cost of goods sold
computed when inventory is valued using the FIFO method exceeds cost of goods sold when inventory is
valued using the LIFO method?
A. Prices decreased.
B. Prices remained unchanged.
C. Prices increased.
D. Price trend cannot be determined from information given.
5. An inventory pricing procedure in which the oldest costs incurred rarely have an effect on the ending
inventory valuation is:
A.FIFO.
B. LIFO.
C. Weighted Average.
D. None of the above.
