Question

peridic inventory using fifo, lifo, and weighted average cost methods... plz help me!

Periodic Inventory Using FIFO, LIFO, and Weighted Average Cost Methods The units of an item available for sale during the year were as follows: Jan. 1 9 units at $38 Inventory Purchase Purchase $342 656 Aug. 7 Dec. 11 16 units at $41 10 units at $43 430 35 units $1,428 There are 18 units of the item in the physical inventory at December 31. The periodic inventory system is used. Determine the inventory cost using (a) the first-in, first-out (FIFO) method; (b) the last-in, first-out (LIFO) method; and (c) the weighted average cost method (round per unit cost to two decimal places and your final answer to the nearest whole dollar) a. First-in, first-out (FIFO) b. Last-in, first-out (LIFO) c. Weighted average cost

Answer 1

Under periodic inventory system, Physical count of Inventory is taken at regular time intervals like quarter end or year end. Various methods are available to determine cost of such physically counted inventory such as FIFO, LIFO and Weighted average cost.

In this example we shall determine Inventory cost using all three methods one by one.

a. First-in, first-out (FIFO):

According to FIFO, as it's name suggests it is assumed that whenever goods are sold and they move out of business it is considered sale of units which came earlier to inventory. Hence as those arrived "First", those are removed "First" too. In this example goods have arrived in following manner: First 9 Units (@$38) then 16 units (@$41) and at last 10 units (@$43). Total Inward of 35 units is reduced to 18 units at end which signifies outward movement of 17 units.

As per FIFO method these 17 units would have been sold from first 17 units as follows:

Inventory Cost Method	FIFO
Particulars	Inward	Rate	Outward	Closing Units	Inventory Cost
Inward	9	$38	9	0	$-
Purchase	16	$41	8	8	$328
Purchase	10	$43	0	10	$430
Total	35		17	18	$758

b. Last-in first-out (LIFO)

LIFO method assumes that units which are sold are belonging to lot of units which have arrived latest. This method assumes that outward 17 units are from latest purchased units:

Inventory Cost Method	LIFO
Particulars	Inward	Rate	Outward	Closing Units	Inventory Cost
Inward	9	$38	0	9	$342
Purchase	16	$41	7	9	$369
Purchase	10	$43	10	0	$-
Total	35		17	18	$711

C. Weighted average cost:

Method of Weighted average cost applies principal of average and a common average cost is worked out for each unit by dividing Total Costs of units with number of units.

Inventory Cost Method	Weighted Average Cost
Particulars	Inward	Rate	Inward Value
Inward	9	$38	$342
Purchase	16	$41	$656
Purchase	10	$43	$430
Total	35		$1,428
Cost per Unit	$1,428 / 35 units = $40.80
Inventory Cost	18 Units	$40.80	$734.40

Final Answer:

a. First-in, first out (FIFO): $758

b. Last-in, last out (LIFO): $711

c. Weighted average cost: $734