Week 7 — Costing the Helmets Three Ways — Traditional alternative (no AI)

Instructors: publish this instead of the adaptive version if you prefer, and unpublish or delete the adaptive one.

Assignment 7 of the term — cost the bicycle shop's helmets by FIFO, LIFO, and weighted average, compare the methods by their effects, apply the lower of cost and net realizable value, and explain to a founder why the method changes the reported profit but not what the shop paid.

This week you learned how a business splits the cost of goods available for sale between cost of goods sold and ending inventory: the cost flow assumption, specific identification, FIFO, LIFO, weighted average, consistency, the IFRS rule on LIFO, the lower of cost and net realizable value, and inventory errors. In Week 1 you met U.S. GAAP and IFRS as two frameworks compared without ranking; in Week 6 you learned cost of goods sold, gross profit, and the periodic system. This week's lecture tutorial, quiz, discussion, and Accounting Workshop practice the same moves from other angles; this assignment is where you put them together.

The task

Your material is Dataset D, the helmet layers from the running case (illustrative): an unnamed bicycle repair and sales shop, organized as a corporation, that uses a periodic system for its helmets. It describes no real business.

• Beginning inventory: 20 helmets at $30 each.
• Purchase 1: 40 helmets at $33 each.
• Purchase 2: 40 helmets at $36 each.
• Sales: 70 helmets at $50 each; 30 helmets remain.
• Net realizable value at period end: $34 a helmet.

Part A — cost the helmets by FIFO and LIFO.

1. Compute the cost of goods available for sale, showing each layer's units times its unit cost and the sum.

2. Work this problem (P1), showing which layers you count out and in what order:

   In Dataset D, the bicycle shop costs its 70 helmets sold by FIFO: 20 helmets at 30 dollars, 40 helmets at 33 dollars, and 10 helmets at 36 dollars. What is FIFO cost of goods sold, in dollars?

   Then compute FIFO ending inventory and gross profit, and check that cost of goods sold plus ending inventory returns to the cost of goods available for sale.

3. Repeat step 2 by LIFO: name the layers counted out first, then compute cost of goods sold, ending inventory, and gross profit, with the same check.

Part B — weighted average, the comparison, and the two rules.

1. Work this problem (P2), showing the unit cost on its way:

   In Dataset D, 100 helmets are available at a total cost of 3,360 dollars, and 70 helmets are sold. Under weighted average, what is cost of goods sold, in dollars?

   Then compute weighted-average ending inventory and gross profit, with the same check.

2. Compare the three methods by their effects. Say which gives the lowest cost of goods sold and which the highest when costs rise, compute the gap between LIFO and FIFO cost of goods sold, and write one plain sentence that names the effect without calling any method better.

3. State whether a company reporting under IFRS could use LIFO for these helmets, and say whose statement the course relies on for that rule.

4. Apply the lower of cost and net realizable value at $34 a helmet: compute the net realizable value of the 30 helmets, the FIFO write-down, and the result of the same test under weighted average.

Explain it to a non-expert

One of the shop's founders, who has never studied accounting, looks at your three schedules and says, "Let's pick whichever method shows the most profit this year, and switch next year if another one looks better." Write a 3–5 sentence message to that founder that explains, in everyday words, what the method changes and what it does not, using the shop's own figures. Explain why the shop applies one method consistently and discloses it, and explain any term the founder might not know, such as cost of goods sold.

For a different, ungraded example, imagine a friend who runs a candle stall and buys wax in three batches at rising prices. She asks whether counting the cheapest wax as used first means she spent less on wax. Model reply: "No — you spent the same on wax no matter which batch we say you used first. The choice only changes how much of that spending shows up as this month's cost and how much stays on your shelf as unused wax. If we count the cheap batch first, this month's profit looks higher and the wax on the shelf looks more valuable. Whatever rule we pick, we keep it every month, so you can compare one month with the next."

Use that pattern for your founder, with your own explanation.

Reflect on your revision

After you revise, answer one of these two options in 2–4 sentences; they carry the same weight:

• (a) Which figure or sentence did you change, and what check showed you it was needed?
• (b) Which of the three methods was hardest to compute, and what idea settled which costs went out first?

Revise with a self-audit

Before you submit, audit your first draft against the attached scoring criteria, one criterion at a time: for every method, name the layers it counts out first and check the order; recompute every layer product and sum; check that each method's cost of goods sold plus ending inventory returns to the cost of goods available for sale; reread your comparison sentence and remove any word that ranks a method; and check each write-down against which amount is lower. Then write a second draft of at least one part, and keep both drafts.

Deliverables

Submit in the assignment entry: the cost of goods available for sale; the FIFO and LIFO schedules with the P1 layer count and both checks; the weighted-average schedule with the P2 unit cost; the comparison with its gap and plain sentence; the IFRS statement and both write-down tests; your message to the founder; your first and second drafts of the part you revised; and your reflection. Each part may be written, or recorded as audio or video with a transcript; every form is graded by the same scoring criteria.

Submit in any accessible file type or as a link; a recorded response may be submitted as audio or video with a transcript, or as text.

How you'll be graded

The full analytic rubric is attached to this assignment in Canvas.

Academic integrity and AI use

The schedules, comparison, rule statements, write-down tests, message, revision, and reflection must be your own work. This version of the assignment asks for no chatbot at any step. Do not invent a rule or a standard; check every one against Chapter 7 and Dataset D above.

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