Question

Kennington Limited uses a perpetual inventory system and the cost of raw materials issued to production is calculated each time an issue is made. Details relating to component LMN, of which there was no opening inventory, are as follows: Date 1 Jan 4 June 3 July 7 Dec Purchases Purchases Issues Issues units Cost per unit Date Units 300 SIO 14 Jan 200 250 $20 18 Jun 250 100 $30 13 Aug 150 100 S35 Required: Calculate (a) the charge to production and (b) the cost of closing inventory using: (i) first-in-first-out (FIFO) (2 marks) (ii) last-in-last-out (LIFO) (2 marks) (iii) average cost (AVCO), rounded to the nearest $ (3 marks) (Total: 7 marks)

Answer 1

(i)	FIFO
		Goods purchased		Charge to production			Inventory
	Date	Units	Cost per unit	Units	Cost per unit	Charge to production	Units	Cost per unit	Inventory Balance
	Jan 01	300	$10				300	$10	$3,000
	Jan 14			200	$10	$2,000	100	$10	$1,000
	June 4	250	$20				100	$10	$1,000
							250	$20	$5,000
	June 18			100	$10	$1,000
				150	$20	$3,000	100	$20	$2,000
	July 3	100	$30				100	$20	$2,000
							100	$30	$3,000
	Aug 13			100	$20	$2,000
				50	$30	$1,500	50	$30	$1,500
	Dec 7	100	$35				50	$30	$1,500
							100	$35	$3,500
						$9,500	150		$5,000
(a)	Charge to production			$9,500
(b)	Cost of closing inventory			$5,000
(ii)	LIFO
		Goods purchased		Charge to production			Inventory
	Date	Units	Cost per unit	Units	Cost per unit	Charge to production	Units	Cost per unit	Inventory Balance
	Jan 01	300	$10				300	$10	$3,000
	Jan 14			200	$10	$2,000	100	$10	$1,000
	June 4	250	$20				100	$10	$1,000
							250	$20	$5,000
	June 18			250	$20	$5,000	100	$10	$1,000
	July 3	100	$30				100	$10	$1,000
							100	$30	$3,000
	Aug 13			100	$30	$3,000
				50	$10	$500	50	$10	$500
	Dec 7	100	$35				50	$10	$500
							100	$35	$3,500
						$10,500	150		$4,000
(a)	Charge to production			$10,500
(b)	Cost of closing inventory			$4,000
(iii)	weighted average
		Goods purchased		Charge to production			Inventory
	Date	Units	Cost per unit	Units	Cost per unit	Charge to production	Units	Cost per unit	Inventory Balance
	Jan 01	300	$10				300	$10	$3,000
	Jan 14			200	$10	$2,000	100	$10	$1,000
	June 4	250	$20				100	$10	$1,000
							250	$20	$5,000
							350	$17	$6,000	Average
	June 18			250	$17	$4,250	100	$17	$1,700
	July 3	100	$30				100	$17	$1,700
							100	$30	$3,000
							200	$24	4700	Average
	Aug 13			150	$24	$3,600	50	$24	$1,200
	Dec 7	100	$35				50	$24	$1,200
							100	$35	$3,500
						$9,850	150		$4,700
	Charge to production			$9,850
	Cost of closing inventory			$4,700