Question

The following data pertains to Efficient Market Investment software packages in the inventory of the Investment Software division of Efficient Market Investment Outlets:

255 units at $124 Inventory, January 1 Purchases: May 10 August 18 October 1 Inventory, December 31 195 units at $122 265 units at $121 255 units at $122 262 units

1. 1(a). Determine the cost of the inventory on December 31 and the cost of goods sold for the year ending on that date under the FIFO method.

2. 1(b). Determine the cost of the inventory on December 31 and the cost of goods sold for the year ending on that date under the LIFO method.

3. 1(c). Determine the unit cost, cost of the inventory on December 31 and the cost of goods sold for the year ending on that date under the average cost method.

   2. Assume that the replacement cost of each unit on December 31 is $122.25. Using the lower of cost or market rule, find the inventory amount under each of the methods given in 1.

Analyze:
What is the difference between the cost and market value of the inventory using the LIFO method?

Answer 1

1A		Cost of goods available for sale			Cost of goods sold - Periodic FIFO			Ending Inventory - Periodic FIFO
	FIFO	# of units    (A)	Cost per unit	Cost of goods available for sale	# of units sold               (B)	Cost per unit	Cost of goods sold	# of units in ending inventory      (A) - (B)	Cost per unit	Ending Inventory
	Beginning Inventory	255	$        124	$     31,620	255	$        124	$ 31,620	-	$        124	$           -
	Purchases:
	May-10	195	$        122	$     23,790	195	$        122	$ 23,790	-	$        122	$           -
	Aug-18	265	$        121	$     32,065	258	$        121	$ 31,218	7	$        121	$        847
	Oct-01	255	$        122	$     31,110		$        122	$           -	255	$        122	$ 31,110
		970		$ 1,18,585	708		$ 86,628	262		$ 31,957
1B		Cost of goods available for sale			Cost of goods sold - Periodic LIFO			Ending Inventory - Periodic LIFO
	LIFO	# of units    (A)	Cost per unit	Cost of goods available for sale	# of units sold               (B)	Cost per unit	Cost of goods sold	# of units in ending inventory      (A) - (B)	Cost per unit	Ending Inventory
	Beginning Inventory	255	$        124	$     31,620	-	$        124	$           -	255	$        124	$ 31,620
	Purchases:
	May-10	195	$        122	$     23,790	188	$        122	$ 22,936	7	$        122	$        854
	Aug-18	265	$        121	$     32,065	265	$        121	$ 32,065	-	$        121	$           -
	Oct-01	255	$        122	$     31,110	255	$        122	$ 31,110	-	$        122	$           -
		970		$ 1,18,585	708		$ 86,111	262		$ 32,474
1C		Cost of goods available for sale			Cost of goods sold - Average Cost			Ending Inventory - Average Cost
	Average Cost	# of units	Cost per unit	Cost of goods available for sale	# of units sold	Cost per unit	Cost of goods sold	# of units in ending inventory	Cost per unit	Ending Inventory
	Beginning Inventory	255	$        124	$     31,620
	Purchases:
	May-10	195	$        122	$     23,790
	Aug-18	265	$        121	$     32,065
	Oct-01	255	$        122	$     31,110
		970		$ 1,18,585	708	$ 122.25	$ 86,553	262	$ 122.25	$ 32,030
	*Average Cost	=	Cost of goods available for sale / No. Of units
		=	$118585/970 units
		=	$                                                                                                                                                          122.25
2	Method		Number of units	Cost	Market (i*$122.25)	Lower
	a.	FIFO	262	$     31,957	32030	$ 31,957
	b.	LIFO	262	$     32,474	32030	$ 32,030
	c.	Average Cost	262	$     32,030	32030	$ 32,030
	Difference in cost and market value using LIFO = $445
	[$32474 - $32030 = $445]