Inventory Costing Methods Analysis

This assignment explores the concepts of FIFO (First-In, First-Out) and Weighted Average inventory costing methods. It examines how these methods affect the calculation of Cost of Goods Sold (COGS) and Gross Profit for Baby Store using specific data provided. The analysis compares the results obtained from both methods to determine which method yields a higher profit for the company.

Running head: FINANCIAL ACCOUNTING
Financial accounting
Name of the student
Name of the university
Author note

1FINANCIAL ACCOUNTING
Table of Contents
Answer to P6 – 10 A..................................................................................................................2
a. Ratio calculation..............................................................................................................2
b. Comment.........................................................................................................................2
Answer to P6 – 11A...................................................................................................................3
a. Cost of goods available for sales.....................................................................................3
b. No of units sold during the year......................................................................................3
c. Cost of ending inventory and cost of goods sold............................................................3
d. Calculation of gross profit...............................................................................................4
Reference....................................................................................................................................5

2FINANCIAL ACCOUNTING
Answer to P6 – 10 A
a. Ratio calculation
Ratio 2014 2013
Inventory turnover ratio
Cost of goods sold / Average inventory
PepsiCo Inc. 9.43 8.94
Coca-Cola Company 5.61 5.63
Days sales in inventory
Inventory / cost of sales * 365
PepsiCo Inc. 37.15 39.83
Coca-Cola Company 63.25 64.93
Gross profit margin
Gross profit / sales *100
PepsiCo Inc. 53.69% 52.96%
Coca-Cola Company 61.11% 60.68%
b. Comment
It can be recognized from the above calculation that the inventory turnover ratio both
2013 and 2014 for PepsiCo Inc is better as compared to Coca-Cola Company. In the same
way, the days sales in inventory is more for Coca-Cola Company as compared to PepsiCo
Inc. therefore, Coca-Cola Company is taking more times to sell all its inventory as compared
to PepsiCo Inc (Feng, McVay & Skaife, 2014). However, the gross profit margin for 2013 as
well as 2014 is more for Coca-Cola Company as compared to PepsiCo Inc. Therefore, though
the profitability position of Coca-Cola Company is better, the inventory turnover position is
better for PepsiCo Inc.

3FINANCIAL ACCOUNTING
Answer to P6 – 11A
a. Cost of goods available for sales
Particulars Units Unit cost Total cost
January 1 - Beginning inventory 200 $ 110.00 $ 22,000.00
15-Mar 80 $ 111.00 $ 8,880.00
20-Jul 60 $ 110.00 $ 6,600.00
4-Sep 25 $ 108.00 $ 2,700.00
2-Dec 10 $ 103.00 $ 1,030.00
Total 375 $ 41,210.00
b. No of units sold during the year
Units available for sale 375
Units in ending inventory 35
Units sold 340
Total sales revenue = 340 * $290 = $ 98,600
c. Cost of ending inventory and cost of goods sold
Cost of ending inventory using FIFO -
Particulars Units Unit cost Total cost
4-Sep 25 $ 108.00 $ 2,700.00
2-Dec 10 $ 103.00 $ 1,030.00
Total 35 $ 3,730.00
Cost of goods sold using FIFO -
Particulars
Unit
s Unit cost Total cost
January 1 - Beginning inventory 200 $ 110.00 $ 22,000.00
15-Mar 80 $ 111.00 $ 8,880.00
20-Jul 60 $ 110.00 $ 6,600.00
Total 340 $ 37,480.00
Cost of ending inventory using weighted average

4FINANCIAL ACCOUNTING
Particulars Units Unit cost Total cost
Total 35 $ 109.89 $ 3,846.27
Cost of goods sold using weighted average
Particulars Units Unit cost Total cost
Total 340 $ 109.89 $ 37,363.73
d. Calculation of gross profit
Calculation of gross profit using FIFO
Particulars Units Unit cost Total cost
Sales revenue 340 $ 290.00 $ 98,600.00
Cost of sales 340 $ 37,480.00
Gross profit $ 61,120.00
Calculation of gross profit using weighted average
Particulars Units Unit cost Total cost
Sales revenue 340 $ 290.00 $ 98,600.00
Cost of sales 340 $ 109.89 $ 37,363.73
Gross profit $ 61,236.27
It is concluded from the above calculation that the company Baby Store shall not use
FIFO instead of weighted average method as the profit as per FIFO is $ 61,120 and as per
weighted average is $ 61,236.27 (Ignaciuk, 2014). Therefore, changing to FIFO will reduce
the gross profit by ($ 61,236.27 - $ 61,120) = $ 116.27.

5FINANCIAL ACCOUNTING
Reference
Feng, M., Li, C., McVay, S. E., & Skaife, H. (2014). Does ineffective internal control over
financial reporting affect a firm's operations? Evidence from firms' inventory
management. The Accounting Review, 90(2), 529-557.
Ignaciuk, P. (2014). Nonlinear inventory control with discrete sliding modes in systems with
uncertain delay. IEEE Transactions on Industrial Informatics, 10(1), 559-568.