Monahan Media
Which units are sold? Which units remain?
Nick's merchandise sales take off in the month of May. Unfortunately, he didn't know how to record the activity. Nick allowed some customers a discount, but isn't sure whether or not it's a good idea to continue.
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Sales Date
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Customer
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Item
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Quantity
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Unit Price
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Discount
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Collection Date
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15-May
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ABC Deli
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Key Chains
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175
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$3.00
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3/10, n30
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30-May
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17-May
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Vienna Sausage Co
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Mugs
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550
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$5.00
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2/10, n30
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25-May
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19-May
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Tree-trimmers
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Bags
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350
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$6.00
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1/15, n30
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31-May
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25-May
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KLEEN House Cleaning
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Water Bottles
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105
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$2.50
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None
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17-June
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When you visit Nick's home office, you discover several disorganized boxes of merchandise. When you sit down to count the merchandise, you find:
325 key chains; 50 mugs; 248 bags;495water bottles
Nick is unsure about the profitability of this aspect of the business. You agree, a better idea of the results of his merchandising activities is needed. You agree to help with the following:
1. Record each of the sales transactions: date of sale and date cash is received. Follow the perpetual inventory method using the FIFO method for computing Cost of Goods Sold.
2. Record each of the sales transactions: date of sale and date cash is received. Follow the perpetual inventory method using the LIFO method for computing Cost of Goods Sold.
3. Determine the value of the ending merchandise inventory. Use the cost information you calculated when the purchase transactions were recorded. And, since you are trying to provide a complete picture of the results, report the Ending Inventory values for each product under the FIFO and LIFO methods.
4. Provide a summary of the findings, including a comparison of the differences between the FIFO and LIFO outcomes by product. If Nick's goal is minimize the company's tax liability, which method do you recommend?
5. How should missing inventory be handled? What might account for the shortage of units? Provide Nick some recommendations to avoid future inventory losses.