Question

Units Unit Cost Date June 12 23 30 Explanation Inventory Purchase P urchase Inventory Total Cost $ 600 2.220 1.400 370 200 230 Instructions (a) Compute the cost of the ending inventory and the cost of goods sold under (1) FIFO.(2) LIFO, and (3) average cost. (Round average unit cost to three decimal places.) 1 Which costing method gives the highest ending inventory? The highest cost of goods sold? Why? How do the averape.cost values for ending inventory and cost of goods sold relate to ending inventory and cost of goods sold for FIFO and LIFO? TILL

Answer 1

Answer Date units Explanation 1 inventory 12 purchases 23 purchases 30 inventory unit cost total cost 120 5 600 3706 2220 7 1400 230 b) LIFO method : under this method the sales were done in reverse chronlogical order that's why the closing stock of 230 units value as follows under 230 units the opening inventory of 120 units held with closing stock and remaining 110 units were purchased on 12 th should be lie on closing stock 200 Total Cost 4220 Unit Sold = Opening inventory + purchases - Closing Inventory = 120+370+200-230 460 units Closing stock under LIFO method date unit units cost total cost 1 120 5 600 12110 6 660 230 1260 FIFO method Cost of Goods Sold = Opening Inventory + Purchases- Closing Inventory 600+2220+1400-1260 2960 there were no sale entry were given in the problem under FIFO method the stock were sold on chronlogical order only Closing stock of 230 units out of which 200 units of 23rd purchses and remaining units of 30 out of which 12 th purchase. Closing stock under FIFO method date unit units cost total cost 7 1400 12 30 6 180 230 1580 200 Cost of Goods Sold = Opening Inventory + Purchases- Closing Inventory 600+2220+1400-1580 2640

C) Avg. Cost Method: Method FIFO Cost of Goods Sold Closing Inventory Total 2640 1580 4220 2960 1260 4220 2813.36 1406.68 4220.04 Under this method we calculate avg.cost of unit LIFO Avg. Cost Date 120 Explanation units unit cost 1 inventory 5 12 purchases 370 23 purchases 200 Total 690 Avg.cost = 4220/690 6.116 total cost 600 2220 1400 4220 1) highest inventory value undr FIFO basis because the cost value of unit price is rising under chronlogical order that's why the COGS will be low as per FIFO method Closing stock = 230 *6.116 1406.680 Cost of goods sold = 460*6.116 2813.360 2) Highest Cost of goods Sold were in LIFO basis because the same reason stated above the unit price increse so under this method reverse chronlogical order taken for sales that's why here COGS is higher where as clsoing stcok would be low. Conclusion: we take any method the total cost would be the same 3) avg cost of unit of 6.116 should applied in Both COGS and Closing Inventory as caluculated above.