Question

Question 2 072 pts Use the following information to answer the next 4 questions. Monsoon Company has a beginning balance in inventory of 400 units at @ $4.20 per unit. A record of transactions for the month of May was as follows: Purchases Sales May Cost May # Price 1,100 $4.10 3 200 $7.00 600 $4.30 800 $7.00 14 900 $4.40 12 800 $7.50 22 1,450 $4.50 18 500 $7.50 29 550 $4.50 25 1,450 $8.00 Determine Monsoon's ending inventory in dollars using Periodic Average. Round to the nearest dollar. 5.67

Answer 1

2) Under periodic average method, average cost is used for valuation of cost of goods sold and cost of ending inventory. Average cost is equal to total cost of goods available for sale divided by total units available for sale.

Calculation of Average cost (Amounts in $)

Date	No. of Units (A)	Cost per unit (B)	Total Cost (A*B)
Beginning Inventory	400	$4.20	1,680
May 4	1,100	$4.10	4,510
May 8	600	$4.30	2,580
May 14	900	$4.40	3,960
May 22	1,450	$4.50	6,525
May 29	550	$4.50	2,475
Total	5,000		21,730

Average cost per unit = Cost of goods available for sale/Total units available

= $21,730/5,000 units = $4.35 per unit

Total units sold = 200+800+800+500+1,450 = 3,750 units

Ending Inventory in units = Total units available - Total Units sold

= 5,000 units - 3,750 units = 1,250 units

Cost of Ending Inventory = Units in Ending Inventory*Average Cost per unit

= 1,250 units*$4.35 per unit = $5,437.50 or $5,438

Therefore Monsoon's Ending inventory using Periodic Average is $5,438.

4) Under FIFO method, the goods purchased first are sold first. In the given case, the ending inventory of 1,250 units would be from units purchased in the last. Ending inventory would include 550 units purchased on May 29 @ $4.50 per unit and remaining 700 (1,250-550) units from purchases on May 22 @ $4.50.

Cost of Ending Inventory = 1,250 units*$4.50 = $5,625

Therefore Monsoon's Ending inventory using Perpetual FIFO is $5,625.

5) Under LIFO method, the goods purchased last are sold first. Calculation of cost of ending inventory is shown as follows:-

Calculation of Cost of Goods Sold and Ending Inventory (Amounts in $)

Date	Purchases			Cost of Goods Sold			Inventory on Hand
	Quantity (a)	Unit Cost (b)	Total Cost (a*b)	Quantity (c)	Unit Cost (d)	Total Cost (c*d)	Quantity (e)	Unit Cost (f)	Total Cost (e*f)
May 1							400	$4.20	1,680
3				200	$4.20	840	200	$4.20	840
4	1,100	$4.10	4,510				200	$4.20	840
							1,100	$4.10	4,510
6				800	$4.10	3,280	200	$4.20	840
							300	$4.10	1,230
8	600	$4.30	2,580				200	$4.20	840
							300	$4.10	1,230
							600	$4.30	2,580
12				600	$4.30	2,580	200	$4.20	840
				200	$4.10	820	100	$4.10	410
14	900	$4.40	3,960				200	$4.20	840
							100	$4.10	410
							900	$4.40	3,960
18				500	$4.40	2,200	200	$4.20	840
							100	$4.10	410
							400	$4.40	1,760
22	1,450	$4.50	6,525				200	$4.20	840
							100	$4.10	410
							400	$4.40	1,760
							1,450	$4.50	6,525
25				1,450	$4.50	6,525	200	$4.20	840
							100	$4.10	410
							400	$4.40	1,760
29	550	$4.50	2,475				200	$4.20	840
							100	$4.10	410
							400	$4.40	1,760
							550	$4.50	2,475
Total			20,050			16,245			5,485

Therefore cost of goods sold is $16,245 and cost of ending inventory is $5,485 under LIFO method.