Question

A company just starting business made the following four inventory purchases in June June 1 150 units at $2.60 $ 390 June 10 200 units at $3.00 600 June 15 200 units at $3.20 640 June 28 150 units at $3.50 525 $2.155 A physical count of merchandise inventory on June 30 reveals that there are 200 units on hand. Instructions: Answer the following independent questions and show computations supporting your answers 1. Assume that the company uses the LIFO method. Determine the value of the ending inventory and the Cost of Goods Sold. LIFO I)Ending Inventory 2) CostdGoods Sold Units Unit Cox Total Cost Date II. Assume that the company uses the FIFO method. Determine the value of the ending inventory and the Cost of Goods Sold. 2) Cost of Goods Sold Ending Inventory Units Unit Cost Date Total Cost III. Assume that the company uses the average-Cost method. Determine the value of the ending inventory and the Cost of Goods Sold. AVERAGE-COST 1)Ending Inventory 2) Cost of Goods Sold Average cost per Unit Units Unit Cost Total Cost

Answer 1

Solution

Determination of value ending inventory and cost of goods sold under different Inventory valuation methods

Total available units –

Beg. Units    0

Purchases –

        150 + 200 + 200 + 150 = 700

Less: ending inventory = 200 units

Sales = 500 units

1. LIFO method: Last in first out method assumes that the sales are made from recently bought inventory. Hence, the cost of goods sold comprise items for recent purchases, while the ending inventory comprises items from earlier purchases.

Cost of goods sold –

	LIFO
Ending Inventory				Cost of Goods Sold
Date	Units	Unit Cost	total Cost	Date	Units	Unit Cost	Total Cost
Jun-01	150	$2.60	$390	Jun-28	150	$3.50	$525
Jun-10	50	$3	$150	Jun-15	200	$3.20	$640
				Jun-10	150	$3.00	$450
total			$540				$1,615

2. FIFO method:

First in first out method assumes that sales are made from items lying in inventory from earlier purchases. Hence, under this method, cost of goods sold comprises items of earlier purchases, while the ending inventory comprise items from recent purchases.

	LIFO
Ending Inventory				Cost of Goods Sold
Date	Units	Unit Cost	total Cost	Date	Units	Unit Cost	Total Cost
Jun-28	150	$3.50	$525	Jun-01	150	$2.60	$390
Jun-15	50	$3.20	$160	Jun-10	200	$3.00	$600
				Jun-15	150	$3.20	$480
total			$685				$1,470

3. Average cost method:

Average cost method, values ending inventory and cost of goods sold at average unit price, which is computed by dividing the total inventory cost by the number of units.

Average cost per unit –

Total cost = $2,155

Total units = 700

Per unit cost = $3.08

Cost of goods sold = 500 units x $3.08 = $1,540

Ending inventory = 200 units x $3.08 = $615