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Big Fish Tackle Co. Ltd. reports the following inventory transactions for its fishing rods for...

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Question

Accounting

Big Fish Tackle Co. Ltd. reports the following inventory transactions for its fishing rods for the month of April. The company uses a perpetual inventory system.

Date

Explanation

Units

Unit Cost/Price

Total Cost

Apr.

1

Beginning inventory

50

$230

$11,500

6

Purchases

35

240

8,400

9

Sales

(55)

350

14

Purchases

40

245

9,800

20

Sales

(50)

360

28

Purchases

30

250

7,500

Instructions

  1. Using FIFO, determine the cost of goods sold and the cost of ending inventory.
  2. Record journal entries for the sales transactions on April 9 and April 20.
  3. Assume that Big Fish Tackle wants to change to the average cost formula. Explain what guidelines the company must consider before making this change.
  4. If the company does change to the average cost formula and prices continue to rise, explain whether you expect the cost of goods sold and ending inventory amounts to be higher or lower than these amounts when using FIFO.

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