Facts: Falcon, Inc. purchased two identical inventory items: - The first item purchased cost $5. - The second item purchased cost $6. - Falcon then sold one of the items for $10. First, use the reverse worksheet to analyze the results that would occur if Falcon used either FIFO, LIFO or W/Avg cost flos Next, based on your reverse analysis, determine if the following are true or false. If false, determine what the correct answer would be. The amount of ending inventory is 56.00 if Falcon, Inc. uses a LIFO cost flow assumption. 2) The gross margin is $4.00 if Falcon Inc. uses a FIFO cost flow assumption. 3) The amount of COGS would be $5.00 if Falcon uses a Weighted Average cost flow method. 4) The amount of gross margin on the sale is $5.50 if a LIFO cost flow assumption is used. 5) The gross margin percentage is 50% if the LIFO cost flow assumption is used. 6) The amount of ending inventory is $6.00 if the FIFO cost flow assumption is used. 7) Falcon would have the highest gross margin if Weighted Average cost flow assumption was used. 8) Ending inventory would be highest if the Weighted Average cost flow assumption was us 9) Income taxes would be highest if the LIFO cost flow assumption was used. 10) Income taxes would be lowest if the FIFO cost flow assumption was used. 11) Falcon's after-tax cash flow (i.e. after taxes have been paid) would be higher if the LIFO cost flow assumption was used. 1) FIFO Costing Method Beginy + Purchases - COGAS Unit Count COGAS -- These units have been sold Cost of Goods Solid To Inc St US Cost Total page. These units have not been sold Ending Inventory (to Bal Sheet Units Costunt Total . 0 $ - - 0 $ - $ - Beg Inv Layer 1 Layer #2 COGAS 0 1 1 2 $5.00 $6.00 $ . Beginy $ 5.00 Layer 31 $6.00 Layer #2 $11.00 . COGS Begin Layer 1 Layer #2 End Inv Sold 1 Unit @ $10 Sales $10.00 COGS 100% 2) LIFO Costing Method Beginy + Purchases - COGAS Units Costunt COGAS These units have been sold Cost of Goods Sold To Inc Stre) Units Costunt Total . These units have not been sold Ending Inventory To Bal Sheet) Units Costunt Total 0 $ . $. 0 $ - $ . Beg Inv 0 Layer #1 1 Layer #2 1 COGAS 2 Sold 1 Unit @ $10 Sales $10.00 COGS $ - $ . $5.00 $ 5.00 $6.00 $ 6.00 $11.00 - Beg Inv Layer #1 Layer #2 COGS Beg Inv Layer #1 Layer #2 End Inv 100% 3) W/Avg Costing Method Beglny + Purchases =COGAS Units Costunt COGAS - These units have been sold Cost of Goods Sold To Inc Start Units Costunt Total These units have not been sold Ending Inventory To Bal Sheet) Units Costunt Total Beg Inv Layer #1 Layer #2 COGAS 0 1 1 2 $ - $ . $5.00 $ 5.00 $6.00 $ 6.00 O $11.00 . Note: The Weighted Average calculation is based upon total cost of the Goods Available for Sale (COGAS) divided by the total number of actual units available for sale. This average unit cost is then used to determine (value) both Cost of Goods Sold and Ending Inventory balances COGS + End Inv Avg Cost: Sold 1 Unit @ $10 Sales $10.00 COGS 100%
