Question

Beg. Inv. o Jan 3rd 190 (15 & a piece 12 200 (201 a piece). 20th 250 20/a pirce) 25th 300 (30/ a piece) I Purchases ending inv. 100 mits. dollars Solve: 1. calculate ending in and coGs in using Fifo 2. Liko 3. weighted Ave 4. Income statement for 3 methods tax rate 28 7 company sells -40 a wit monthly ope mit - 1120 toto het iname

Answer 1

1. Calculation of ending inventory and COGS using FIFO:

Calculation of ending inventory value under FIFO:
	Particulars	Qty	Rate	Value
Jan-01	Opening Inventory	0	0	0
Jan-03	Purchases	150	15	2250
Jan-12	Purchases	200	20	4000
Jan-20	Purchases	250	20	5000
Jan-25	Purchases	300	30	9000
	Total Purchases	900		20250
	Closing inventory	100	30	3000
Under FIFO method the closing inventory is valued at the latest purchase price.
In this case the last purchase is 300 units @ $30. Hence the closing inventory of 100 units is valued at $30.

Calculation of COGS under FIFO:
COGS = Opening inventory + Purchases - Ending inventory
COGS = 0 + 20250 - 3000		$ 17,250

2. Calculation of ending inventory and COGS using LIFO:

Calculation of ending inventory value under LIFO:
	Particulars	Qty	Rate	Value
Jan-01	Opening Inventory	0	0	0
Jan-03	Purchases	150	15	2250
Jan-12	Purchases	200	20	4000
Jan-20	Purchases	250	20	5000
Jan-25	Purchases	300	30	9000
	Total purchases	900		20250
	Closing inventory	100	15	1500
Under LIFO method the closing inventory is valued at the First purchase price.
In this case the last purchase is 150 units @ $15. Hence the closing inventory of 100 units is valued at $15.
Note: We do not have the information of when the inventory is sold. We have
assumed that the inventory has been sold in month end. Had the sale been
effected during the month the first purchase price will not be $15 and accordingly inventory value will change.
Calculation of COGS under LIFO:
COGS = Opening inventory + Purchases - Ending inventory
COGS = 0 + 20250 - 1500		$ 18,750

3. Calculation of ending inventory and COGS using LIFO:

Calculation of ending inventory value under Weighted average cost:
	Particulars		Qty	Rate	Value
Jan-01	Opening Inventory		0	0	0
Jan-03	Purchases		150	15	2250
Jan-12	Purchases		200	20	4000
Jan-20	Purchases		250	20	5000
Jan-25	Purchases		300	30	9000
	Total purchases		900	22.5	20250
	Closing inventory		100	22.5	2250
Under WAC method the closing inventory is valued at the average purchase price.
In this case the average purchase price is $22.50 ( Total purcahse value / Total quantity purchased)
i.e., $ 20250 / 900 units = $22.50
Calculation of COGS under WAC:
COGS = Opening inventory + Purchases - Ending inventory
COGS = 0 + 20250 - 2250			$ 18,000

4. Income statement under 3 methods:

Income Statement using different methods of Inventory valuation:
Particulars	FIFO	LIFO	WAC
	$	$	$
Revenue ( 800 x $40 ) *Note	32,000	32,000	32,000
Less: COGS	17,250	18,750	18,000
Gross Margin	14,750	13,250	14,000
Less:Operating cost	1,120	1,120	1,120
Profit Before tax	13,630	12,130	12,880
Less: Taxes @ 28%	3,816	3,396	3,606
Net Income	9,814	8,734	9,274

* Note: The sale quantity is arrived at as Opening inventory + purchases - Closing inventory. i.e., 0+900-100 = 800 Units.