Question

Information about Vinzant Company’s inventory of one item follows.

Number of Unit Units Cost 135 $ 270 Explanation Beginning inventory, January 1 Purchases: April August October Ending inventory, December 31 175 195 145 135 275 280 282

1. Compute the cost of the ending inventory under the average cost method.
2. Compute the cost of the ending inventory under the FIFO method.
3. Compute the cost of the ending inventory under the LIFO method.

Answer 1

Answer 1)

Calculation of cost of ending inventory under Average Cost Method

Average Cost	Merchandise Available for Sale			Ending Inventory
	Number of units	Unit cost (in $)	Total cost (in $)	Number of units	Average cost per unit (in $)	Total Cost (in $)
Beginning inventory	135	270	36,450
Purchases:
April	175	275	48,125
August	195	280	54,600
October	145	282	40,890
Total	650		180,065	135	277.02	37,398

Average Cost method: Under this method value of ending inventory is calculated by dividing the number of units in ending inventory by the average cost per unit. Average cost per unit is calculated by dividing the aggregate cost of units beginning inventory and units purchased during the period by the aggregate number of units in beginning inventory and units purchased during the said period.

Weighted Average cost = $ 180,065/ 650 units

                                           = $ 277.02

Value of ending inventory = 135 units X $ 277.02

                                                = $ 37,398 (approximately)

Therefore the value of ending inventory under Average cost method is $ 37,398.

Answer 2)

Calculation of cost of ending inventory under FIFO Method

FIFO Method	Merchandise Available for Sale			Ending Inventory
	Number of units	Unit cost (in $)	Total cost (in $)	Number of units	Unit cost (in $)	Total Cost (in $)
Beginning inventory	135	270	36,450	-	-	-
Purchases:
April	175	275	48,125	-	-	-
August	195	280	54,600	-	-	-
October	145	282	40,890	135	282	38,070
Total	650		1,80,065	135		38,070

FIFO Method: Under FIFO method, it is assumed that the units of inventory which are first bought will be sold first and so on. Thus the ending inventory will be units which are latest bought and moving backwards. In the given question, the company had 135 units in the ending inventory. Under FIFO method, the said inventory will be from the units bought in October at $ 282 per unit.

Therefore the value of ending inventory under FIFO method is $ 38,070.

Answer 3)

Calculation of cost of ending inventory under LIFO Method

LIFO Method	Merchandise Available for Sale			Ending Inventory
	Number of units	Unit cost (in $)	Total cost (in $)	Number of units	Unit cost (in $)	Total Cost (in $)
Beginning inventory	135	270	36,450	135	270	36,450
Purchases:
April	175	275	48,125	-	-	-
August	195	280	54,600	-	-	-
October	145	282	40,890	-	-	-
Total	650		1,80,065	135		36,450

LIFO Method: Under LIFO method, it is assumed that the units of inventory which are latest bought will be sold first and moving backwards. Thus the ending inventory will be units which are bought at the earliest and so on. In the given question, the company had 135 units in the ending inventory. Under LIFO method, the said inventory will be from the units in beginning inventory at $ 270 per unit.

Therefore the value of ending inventory under LIFO method is $ 36,450.