Added on -2020-07-23

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INVENTORY ANALYSISAND DEPRECIATIONMETHODS

Table of ContentsProblem 1: Cost Flow Assumptions for Inventory of the records of Sheldon and Blair.................11.Inventory computation of each method...............................................................................12. Higher pretax income and higher EPS of LIFO and FIFO.................................................43. Assuming 35% of average tax rate which provides income tax of LIFO and FIFO..........44. LIFO or FIFO which provides favourable cash flow.........................................................4Problem 2: Effects of variations in the methods of depreciation.....................................................41. Costs of each machinery.....................................................................................................52. Calculation of the depreciation on the basis various methods on each machinery............5REFERENCES................................................................................................................................7

Problem 1: Cost Flow Assumptions for Inventory of the records of Sheldonand Blair1.Inventory computation of each methodA. Average cost: The average cost of goods sold can be calculated on the basis ofdividing the total costs of sales with the total units to sales. Average cost:$8,620 ÷ 1,300 units =6.63Interpretation: The total sales made by Sheldon and Blair at $8620 for the total unit canbe sold about 1300, so the average cost of this organisation can be dividing the total sales by theunits of inventory is 6.63.B. FIFO: The inventory to be sold by Sheldon and Blair can be as follows:FIFO:200units @ $7.10$1,420 400units @ $7.00$2,800 600$4,220 Interpretation: It is to be interpreted Sheldon and Blair's sales made on the basis of this method200 units were sold at 7.10 which amounted 1,420. The 400 units can be sold for 7.00 whichamounted for 2,800. The computation of total cost of goods sold by Sheldon and Blair as FIFO:Beginning inventoryPurchases (net)3Goods available for saleEnding inventory4Cost of goods sold$3,000 $5,620 $8,620 $4,220 $4,400 Interpretation: As per the above calculation it is to be interpreted that the cost of goods sold bythis organisation on the basis of FIFO method is favourable and higher than the other methods.Due the techniques used in this method the first purchased inventory can be sold on its actual1

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