A finished ACC-370 Topic 3 cost flow and write-down problem example, costing one year of rising-price purchases three ways and applying the year-end valuation test each method requires. Searches like "acc 370 topic 3 assignment example", "acc370 topic 3 sample" and "acc-370 topic 3 example" land here.
What a finished ACC-370 Topic 3 cost flow and write-down problem looks like
The problem works from one product's year, with illustrative figures: 200 items on hand at $10, then purchases of 300 at $12, 300 at $14 and 200 at $15, for $12,800 of goods available, of which 700 sell at $22. Ending inventory of 300 items costs $4,400 under FIFO, $3,200 under periodic LIFO and $3,840 under weighted average, and gross profit moves from $7,000 to $5,800 to $6,440 accordingly. The $1,200 gap between FIFO and LIFO is labeled as the LIFO reserve a reader would see disclosed. Year end brings a price cut: the item now sells for $16 with $2 of selling cost, so net realizable value is $14. FIFO cost exceeds that by $200 and is written down; average cost does not. LIFO is tested against market instead, and on these facts needs no write-down.
How an ACC-370 Topic 3 example is structured
The problem is laid out so each method's result can be traced to the same data. It opens with the inventory record for the year, stating that the company uses a periodic system and that prices rose throughout. A second part builds one table per method, FIFO, LIFO and weighted average, each showing which layers are expensed and which remain on hand. The third part sets the three results together and ties each gap to the fact that later purchases cost more than earlier ones. A fourth part states which year-end test applies to which method, since the choice of test follows the cost flow assumption. The fifth part measures net realizable value, applies it to the FIFO and average figures and records the FIFO write-down. The final part applies the market test to LIFO and notes that a write-down, once taken, is not reversed in a later year.
Layers shown, not summarized
Each purchase appears as its own cost layer in every method's table, making plain which layers each assumption expenses and which it leaves in ending inventory.
Price direction stated with the data
The problem notes that costs rose all year before comparing methods, since every conclusion about which method reports more income depends on that fact.
The LIFO reserve identified
The difference between FIFO and LIFO ending inventory is named as the reserve a LIFO company discloses, which lets an outside reader restate the figures to FIFO.
The right test for each method
Net realizable value governs the FIFO and average figures and the market test governs LIFO, a split many papers miss by applying one test everywhere.
Net realizable value computed from its parts
Expected selling price less the costs to sell gives the $14 figure, and the write-down follows from comparing that amount with cost for the items on hand.
Where marks go in ACC-370 Topic 3
Inventory problems are checked against arithmetic a marker can redo, so the first losses are computational. Mixing periodic and perpetual LIFO within one problem produces an ending inventory that matches neither method. Comparing the three results without stating that prices rose leaves the explanation hanging on an assumption the reader cannot see. The rule-level error is applying lower of cost or market to FIFO inventory, which current US GAAP replaced with net realizable value for every method except LIFO and the retail inventory method. Net realizable value computed as selling price alone, with the costs to sell omitted, overstates the ceiling and can hide a required write-down. Papers that reverse a write-down when prices recover the following year treat an annual valuation as a temporary adjustment, which US GAAP does not permit.
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ACC-370 Topic 3 questions, answered
Why does LIFO still use lower of cost or market?
Because the simplification the FASB adopted applied net realizable value to inventory measured under FIFO and average cost, and left LIFO and the retail inventory method on the older test. For those, market is replacement cost limited by a ceiling of net realizable value and a floor of net realizable value less a normal profit margin. Coursework often tests whether the correct test is chosen.
Can a company choose LIFO for tax and FIFO for its statements?
Not in the United States. The LIFO conformity rule requires a company using LIFO for federal income tax purposes to use it in its financial statements as well, which is one reason LIFO companies disclose a LIFO reserve. International standards do not permit LIFO at all, which matters when a problem compares a US company with a foreign one.
Is a write-down ever reversed?
Not in a later annual period under US GAAP. Once inventory is written down, the reduced amount becomes its cost for subsequent accounting, so a recovery in selling price the following year raises profit only when the goods are sold. Recoveries within the same fiscal year can be treated differently in interim reports, a detail some sections raise and most do not.