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What are the acceptable inventory valuation methods under the U.S.Generally Accepted Accounting Principles (GAAP)?
How does each affect the valuation of inventory?
How does each affect cost of goods sold?
What elements might organizational leaders consider when selectingwhich inventory valuation method to adopt?

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Deanna Hettinger
Deanna HettingerLv2
29 Sep 2019

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Every month, a local auto parts store purchases stainless steelcylinder head gaskets directly from the manufacturer. The pricethat the local auto parts store pays is adjusted monthly due to thehigh volatility of steel prices.

Beginning inventory January 1st: 500 units at a price of $20

Purchases in January: 100 units at a price of $22

Purchases in February: 225 units at a price of $24.50

Purchases in March: 200 units at a price of $21

At the end of each quarter, the store performs a physicalinventory count.

When the current physical inventory count was performed on March31st, 327 stainless steel cylinder head gaskets were counted.

Task 1: Calculate the ending inventory valueusing the First-in, first-out (FIFO) and Last-in, first-out (LIFO)methods assuming a periodic record keeping method.

Task 2: Calculate Sales, Cost of Goods Sold,and Gross Margin for each inventory valuation method assuming thatthe sale price from the local auto parts store to the end customeris $43 per gasket

Every month, a local auto parts store purchases stainless steelcylinder head gaskets directly from the manufacturer. The pricethat the local auto parts store pays is adjusted monthly due to thehigh volatility of steel prices.

Beginning inventory January 1st: Purchases in January:
Purchases in February: Purchases in March:

500 units at a price of $20 100 units at a price of $22 225units at a price of $24.50 200 units at a price of $21

At the end of each quarter, the store performs a physicalinventory count.

When the current physical inventory count was performed on March31st, 327 stainless steel cylinder head gaskets were counted.

Task 1: Calculate the ending inventory value using the First-in,first-out (FIFO) and Last-in, first-out (LIFO) methods assuming aperiodic record keeping method.

Task 2: Calculate Sales, Cost of Goods Sold, and Gross Marginfor each inventory valuation method assuming that the sale pricefrom the local auto parts store to the end customer is $43 pergasket.

Make sure you explain how you arrive at your solution.

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