Comparing FIFO and WACC Costing Methods for Financial Accounting

School: Seneca College - Course: IAF 841 - Subject: Accounting

FIFO Periodic Method 31-Dec-19 Ending Inv =3200 x16 = 51200 31-Dec-20UnitsCost Beg Inv3200 $16/Unit$51,200 +Purchases9100 $13/Unit118300 =COGAS12300169500 -End Inv4000 $13/Unit-52000 =COGS8300117500 Ratio Calcultions Current Assets$10,000Current Liab Inv52000LT-Debt Non-Current Assets107000Total Liab Total Assets$169,000 Sales $284,000 COGS-117500 Gross Profit$166,500 Other Expenses-40000 Net Income$126,500 Current Ratio: 62000/32600 = 1.9018 Total Debt to Assets:82600/169500 = 0.4873 Yang's Bonus on ROA:126500/169000 =74.85% 74.8%-25% = 49.85% x $1000 = $49850 Bonus Issue: 3031 Inventories - Inventory Cost: Since, Yang is now preparing financial statements for December 31, 202 Consulting with ASPE 3031 for Inventories. It states that the cost of inventories, other than those dealt with in pa In coheshion with PH026: Whereas, under the WACC formula, the cost of each item is determined from the weighted average of the cost o Recommendation: Following the Accounting Standard 3031 for Inventories Yang can choose to either use FIFO or Weighted Average Based on the calculation for the FIFO periodic method the current ratio is 1.9018 whereas, the current ratio unde Likewise, if we look at the Total Debt to Assets ratio under both costing methods we can see that both methods pThe FIFO formula assumes that the items of inventory that were purchased or produced first are sold first and, co

Hence, overall Yang should opt in using the WACC method over the FIFO method because it is not only a better r

WACC Periodic Method 31-Dec-19 Ending Inv =3200 x16 = 51200 31-Dec-20UnitsCost Beg Inv3200 $16/Unit +Purchases9100 $13/Unit =COGAS12300 -End Inv4000 $13.7805/Unit =COGS8300 Ratio Calcultions $32,600Current Assets$10,000 50000Inv55122 82600Non-Current Assets107000 Total Assets$172,122 Sales $284,000 COGS-114378 Gross Profit$169,622 Other Expenses-40000 Net Income$129,622 Current Ratio: 65122/ 32600 =1.9976 Total Debt to Assets:82600/172122 = 0.4799 Yang's Bonus on ROA:129622/172122 =75.31% 75.31%-25% = 50.31% x $1000 = $50310 Bonus 20 year he must adhere to choosing the correct costing method. In accordance, with ASPE Inventories stand aragraph 23, shall be assigned by using the first-in, first-out (FIFO) or weighted average cost formula. Likewis