Question

The beginning inventory and pus che Brown Company for 2019 Selated below antony and purchases of certain inventory item EOT - Dato January 1 March 10 June 30 Purchase Unita May 29 4,500 Unit Cost 600 Unite 4,400 October 16 400 1,000 The ending seven anding inventory consists of 1,100 units. Required: 2. Assuming that the BEO Company uses the periodo inventory method, determine the cost of the ending inventory on December 31, 2019 under sach of the following inventory valuation methods: a. Weighted average. b. FIFO. c. LIFO. 2. Assuming that the Brown Company Os the perpetual inventory method, determine the cost of the ending inventory on December 31, 2019 under each of the following inventory valuation methods : a. Weighted average. b. FIFO. c. LIPO. 3. Which of the three inventory valuation methods mentioned above provides a net income figure that is most desirable for tax purposes? Explain.

Answer 1

1. a) Weighted Average

	units	rate	Total
Purchase
1-Jan	600	36	21,600.00
10-Mar	4400	38	167,200.00
30-Jun	1000	41	41,000.00
Total	6000		229,800.00
Average Cost	Total Cost/Total units		38.30
Sales	4900	38.3	187,670.00
Closing Inventory
1100units @38.3	42130
Total	42130

b) FIFO Method

	units	rate	Total
Purchase
1-Jan	600	36	21,600
10-Mar	4400	38	167,200
30-Jun	1000	41	41,000
Sales
29-May	600	36	21,600
	3900	38	1,482,00
16-Oct	400	38	152,00
Closing Inventory
100units @38	3800
1000 units @41	41000
Total	44800

1. c) LIFO Method

	units	rate	Total
Purchase
1-Jan	600	36	21,600.00
10-Mar	4400	38	167,200.00
30-Jun	1000	41	41,000.00
Sales
29-May	1000	41	41,000.00
	3500	38	133000
16-Oct	400	38	15200
Closing Inventory
600units @36	21600
500 units @38	19000
Total	40600

2. a) Weighted Average

Weighted Average Method		Goods Purchased		Goods Sold			Inventory Remaining
	# Units	Unit Cost	Total Cost	# Units	Unit Cost	Total Cost	# Units	Unit Cost	Total Cost
Purchase, Jan 1	600	36	21,600				600	36.00	21,600
Purchase. Mar 10	4,400	38	167,200				5,000	37.76	188,800
Sales, May 29				4,500	37.76	169,920	500	37.76	18,880
Purchase, June 30	1,000	41	41,000				1,500	39.92	59,880
Sales, Oct 16				400	39.92	15,968	1,100	39.92	43,912
Cost Value:
1100 units @39.92	43,912
Total cost	43,912

b) FIFO Method

FIFO Method		Goods Purchased		Goods Sold			Inventory Remaining
	# Units	Unit Cost	Total Cost	# Units	Unit Cost	Total Cost	# Units	Unit Cost	Total Cost
Purchase, Jan 1	600	36	21,600				600	36	21,600
Purchase. Mar 10	4,400	38	167,200				600	36	21,600
							4,400	38	167,200
Sales, May 29				600	36	21,600
				3,900	38	148,200	500	38	19,000
Purchase, June 30	1,000	41	41,000				500	38	19,000
							1,000	41	41,000
Sales, Oct 16				400	38	15,200	100	38	3,800
							1,000	41	41,000
Cost Value:
100units @38	3,800
1000 units @41	41,000
Total cost	44,800

C) LIFO Method

LIFO Method		Goods Purchased		Goods Sold			Inventory Remaining
	# Units	Unit Cost	Total Cost	# Units	Unit Cost	Total Cost	# Units	Unit Cost	Total Cost
Purchase, Jan 1	600	36	21,600				600	36	21,600
Purchase. Mar 10	4,400	38	167,200				600	36	21,600
							4,400	38	167,200
Sales, May 29				4,400	38	167,200
				100	36	3,600	500	36	18,000
Purchase, June 30	1,000	41	41,000				500	36	18,000
							1,000	41	41,000
Sales, Oct 16				400	41	16,400	500	36	18,000
							600	41	24,600
Cost Value:
500 units @36	18,000
600 units @41	24,600
Total cost	42,600

3) LIFO Inventory valuation Method under periodic method is best in current situation for tax purpose as cost is rising and cost will be higher under this method, resulting in lower income will results in lower tax.