Question

5 E8-13 (FIFO and Average-Cost Determination) LoBianco Company's record of transactions for the month of April was as follows. Purchases 1(balance on hand) April 600 @ $6.00 1,500 @ 6.08 800 @6.40 1,200 @ 6.50 700 @ 6.60 500 @ 6.79 5,300 Sales April 3 500 @ $10.00 9 1,300 10.00 11 600 @ 11.00 23 1,200 @ 11.00 27 900 @ 12.00 4,500 Instructions (a) Assuming that periodic inventory records are kept, compute the inventory at April 30 using (1) FIFO and (2) average-cost. (b) Assuming that perpetual inventory records are kept in both units and dollars, determine the inventory at April 30 using (1) FIFO and (2) average-cost. (c) In an inflationary period, which inventory method-FIFO or average-cost-will show the highest net income?

Answer 1

1) Under FIFO method, there is no difference in ending inventory between periodic vs perpetual inventory records.

2) Inventory computation as at April 30 under Perpetual Inventory Record:

							FIFO
Date	Activity	Units Acquired	Cost per unit	Total	Units Sold	Price per unit	Units	Price Per unit	Total	Cumulative unit	Cumulative Total
1-Apr	Opening Inventory	600	6.00	3,600.00			600.00	6.00	3,600.00	600	3,600.00
3-Apr	Sales				500	10.00	(500.00)	6.00	(3,000.00)	100	600.00
4-Apr	Purchase	1500	6.08	9,120.00			1,500.00	6.08	9,120.00	1600	9,720.00
8-Apr	Purchase	800	6.40	5,120.00			800.00	6.40	5,120.00	2400	14,840.00
9-Apr	Sales				1300	10.00	(100.00)	6.00	(600.00)	2300	14,240.00
							(1,200.00)	6.08	(7,296.00)	1100	6,944.00
11-Apr	Sales				600	11.00	(300.00)	6.08	(1,824.00)	800	5,120.00
							(300.00)	6.40	(1,920.00)	500	3,200.00
13-Apr	Purchase	1200	6.50	7,800.00			1,200.00	6.50	7,800.00	1700	11,000.00
21-Apr	Purchase	700	6.60	4,620.00			700.00	6.60	4,620.00	2400	15,620.00
23-Apr	Sales				1200	11.00	(500.00)	6.40	(3,200.00)	1900	12,420.00
							(700.00)	6.50	(4,550.00)	1200	7,870.00
27-Apr	Sales				900	12.00	(500.00)	6.50	(3,250.00)	700	4,620.00
							(400.00)	6.60	(2,640.00)	300	1,980.00
29-Apr	Purchase	500	6.79	3,395.00			500.00	6.79	3,395.00	800	5,375.00
	Total (A)			33,655.00						Ending Inventory (B)	5,375
										Cost of Goods Sold (A)-(B)	28,280

Weighted Average Method
Date	Activity	Units Acquired	Cost per unit	Total	Units Sold	Price per unit
1-Apr	Opening Inventory	600	6.00	3,600.00
3-Apr	Sales				500	10.00
4-Apr	Purchase	1500	6.08	9,120.00
8-Apr	Purchase	800	6.40	5,120.00
9-Apr	Sales				1300	10.00
11-Apr	Sales				600	11.00
13-Apr	Purchase	1200	6.50	7,800.00
21-Apr	Purchase	700	6.60	4,620.00
23-Apr	Sales				1200	11.00
27-Apr	Sales				900	12.00
29-Apr	Purchase	500	6.79	3,395.00
	Total (A)	5300	6.35	33,655.00	4500
	Units Sold ( C)	(4,500)
	Ending Inventory (B) = (A)-( C)	800	6.35	5,080
	Cost of Goods Sold (A)-(B)			28,575

c) During Inflationary period, FIFO method shows highest net income.