Question

1. Given the following information for the month of January:

Date	Details	Quantity	Cost	Total
1/1	Beginning Inventory	10	$10	$100
1/10	Sale	5	$20	$100
1/14	Purchase	20	$15	$300
1/18	Purchase	20	$20	$400
1/22	Sale	20	$20	$400
1/25	Sale	20	$25	$500
1/31	Ending Inventory	5

What is total cost of inventory using FIFO METHOD?

LIFO METHOD?

Weighted Average?

Answer 1

	FIFO	LIFO	Weighted average
Cost of inventory	$         100	$            50	$            80

FIRST-IN, FIRST OUT METHOD
						Ending Inventory			Cost of Goods Sold
		Units	Cost	Total		Units	Total		Units	Total
`Jan 1	Beginning inventory	10	$          10.00	$             100.00					10	$                   100.00
`Jan 14	Purchase	20	$          15.00	$             300.00					20	$                   300.00
`Jan 18	Purchase	20	$          20.00	$             400.00		5	$          100.00		15	$                   300.00
Cost of Goods Available		50		$             800.00
Less:	Ending Inventory	5				5	$          100.00
	Cost of Goods Sold	45							45	$                   700.00
LAST-IN, FIRST OUT METHOD
						Ending Inventory			Cost of Goods Sold
		Units	Cost	Total		Units	Total		Units	Total
`Jan 1	Beginning inventory	10	$          10.00	$             100.00		5	$             50.00		5	$                     50.00
`Jan 14	Purchase	20	$          15.00	$             300.00					20	$                   300.00
`Jan 18	Purchase	20	$          20.00	$             400.00					20	$                   400.00
Cost of Goods Available		50		$             800.00
Less:	Ending Inventory	5				5	$             50.00
	Cost of Goods Sold	45							45	$                   750.00
WEIGHTED AVERAGE METHOD
						Ending Inventory			Cost of Goods Sold
		Units	Cost	Total		Units	Total		Units	Total
`Jan 1	Beginning inventory	10	$          10.00	$             100.00
`Jan 14	Purchase	20	$          15.00	$             300.00
`Jan 18	Purchase	20	$          20.00	$             400.00
Cost of Goods Available		50		$             800.00		Avg Cost/Unit
Less:	Ending Inventory	5				$    16.00	$             80.00		Avg Cost/Unit
	Cost of Goods Sold	45					(5units × $16)		$    16.00	720.00
										(45units × $16)

Cost of Goods Available (A)	$     800.00
Number of units available for sale (B)	50
Avg Cost/Unit (A) ÷ (B)	$     16.000

FIFO

• FIFO stands for First In First Out.
• Under this method of inventory valuation, the earliest purchased inventory items are recorded as sold first in the books of accounts. That is, the ending inventory will always reflect the most recent purchase cost.

LIFO

• LIFO stands for Last In First Out.
• Under this method of inventory valuation, the latest purchased inventory items are recorded as sold first in the books of accounts. That is, the ending inventory will be valued at the earliest purchase cost.
• Under inflationary conditions, inventory is undervalued under LIFO method.

Weighted Average

• Under this method, the ending inventory is valued at the weighted average cost per unit.
• Weighted average cost per unit = Cost of inventory available for sale ÷ Number of units available for sale
• Cost of inventory available for sale = Beginning inventory + net purchases