Periodic Inventory by Three Methods; Cost of Merchandise Sold
The units of an item available for sale during the year were as follows:
Jan. 1 | Inventory | 30 units @ $122 |
Mar. 10 | Purchase | 70 units @ $132 |
Aug. 30 | Purchase | 30 units @ $138 |
Dec. 12 | Purchase | 70 units @ $142 |
There are 80 units of the item in the physical inventory at December 31. The periodic inventory system is used.
Determine the inventory cost and the cost of merchandise sold by three methods. Round interim calculations to one decimal and final answers to the nearest whole dollar.
Cost of Merchandise Inventory and Cost of Merchandise Sold | ||
Inventory Method | Merchandise Inventory | Merchandise Sold |
First-in, first-out (FIFO) | $ | $ |
Last-in, first-out (LIFO) | ||
Weighted average cost |
Answer)
Facts of the Question
Date |
Particulars |
Number of Units |
Cost per unit |
Amount |
Jan'1 |
Inventory |
30 |
$ 122 |
$ 3,660 |
Mar'10 |
Purchase |
70 |
$ 132 |
$ 9,240 |
Aug'30 |
Purchase |
30 |
$ 138 |
$ 4,140 |
Dec'12 |
Purchase |
70 |
$ 142 |
$ 9,940 |
Total |
200 |
$ 26,980 |
Calculation of number of units sold
Number of units sold = Units Beginning inventory + units purchased during the period – units in ending inventory
= 30 units + (70 units + 30 units+ 70 units) – 80 units
= 120 units
Therefore the company sold 120 units during the year.
First-in, First-out Method
First-in, First-out Method: Under this method following periodic inventory system, the value of inventory is calculated at the end of a certain period on the assumption that the inventory which is bought first will be sold first and so on. Thus the units of inventory which are bought at a latest date will form part of the ending inventory.
Value of ending inventory
Thus under First-in, First-out Method out of 80 units in inventory on December’31, 10 units will be from the purchase made on Aug’30 at $ 138 per unit and balance 70 units will be from the purchase made on Dec’12 at $ 142 per unit.
Date |
Particulars |
Number of Units |
Cost per unit |
Amount |
Aug'30 |
Purchase |
10 |
$ 138 |
$ 1,380 |
Dec'12 |
Purchase |
70 |
$ 142 |
$ 9,940 |
Total |
80 |
$ 11,320 |
Thus the value of 80 units of inventory under First-in, First-out Method is $ 11,320.
Cost of Goods Sold:
Thus under First-in, First-out Method out of 120 units sold, 30 units will be from beginning inventory at $ 122 per unit, 70 units will be from the purchase made on Mar’10 at $ 132 per unit and balance 20 units will be from the purchase made on Aug’30 at $ 138 per unit.
Date |
Particulars |
Number of Units |
Cost per unit |
Amount |
Jan'1 |
Inventory |
30 |
$ 122 |
$ 3,660 |
Mar'10 |
Purchase |
70 |
$ 132 |
$ 9,240 |
Aug'30 |
Purchase |
20 |
$ 138 |
$ 2,760 |
Total |
120 |
$ 15,660 |
Thus the Cost of goods sold under First-in, First-out Method is $ 15,660.
Last-in, First-out Method
Last-in, First-out Method: Under this method following periodic inventory system, the value of inventory is calculated at the end of a certain period on the assumption that the latest bought inventory will be sold first and moving backwards. Thus the units of inventory which are bought at the earliest date will form part of the ending inventory.
Thus under Last-in, First-out Method out of 80 units in inventory on Dec’ 31, 30 units will be from the beginning inventory on Jan’1 at $ 122 per unit and balance 50 units will be from the purchase made on Mar’10 at $ 132 per unit.
Value of ending inventory
Date |
Particulars |
Number of Units |
Cost per unit |
Amount |
Jan'1 |
Inventory |
30 |
$ 122 |
$ 3,660 |
Mar'10 |
Purchase |
50 |
$ 132 |
$ 6,600 |
Total |
80 |
$ 10,260 |
Thus the value of 80 units of inventory under Last-in, First-out Method is $ 10,260.
Cost of Goods Sold:
Thus under Last-in, First-out Method out of 120 units sold, 70 units will be from purchase made on Dec’12 at $ 142 per unit, 30 units will be from purchase made on Aug’30 at $ 138 per unit, and balance 20 units will be from purchase made on Mar’10 at $ 132 per unit
Date |
Particulars |
Number of Units |
Cost per unit |
Amount |
Mar'10 |
Purchase |
20 |
$ 132 |
$ 2,640 |
Aug'30 |
Purchase |
30 |
$ 138 |
$ 4,140 |
Dec'12 |
Purchase |
70 |
$ 142 |
$ 9,940 |
Total |
120 |
$ 16,720 |
Thus the Cost of goods sold under Last-in, First-out Method is $ 16,720.
Weighted Average Cost Method
Weighted Average Cost Method: Under this method following periodic inventory system, a weighted average cost is calculated by dividing the aggregate value of opening inventory and inventory purchased during the period by Total number of units in beginning inventory and units purchased during the period.
The weighted average cost so calculated is the multiplied with units in the ending inventory to calculated its value.
Date |
Particulars |
Number of Units |
Cost per unit |
Amount |
Jan'1 |
Inventory |
30 |
$ 122 |
$ 3,660 |
Mar'10 |
Purchase |
70 |
$ 132 |
$ 9,240 |
Aug'30 |
Purchase |
30 |
$ 138 |
$ 4,140 |
Dec'12 |
Purchase |
70 |
$ 142 |
$ 9,940 |
Total |
200 |
$ 26,980 |
Weighted average cost = (aggregate value of opening inventory and inventory purchased during the period)/ Total number of units in beginning inventory and units purchased during the period
= $ 26,980/ 200 units
= $ 134.9 per unit
Value of Ending Inventory:
Value of ending inventory = Weighted average cost per unit X number of units in ending inventory
= $ 134.9 X 80 units
= $ 10,792
Thus the value inventory under Weighted Average Cost Method is $ 10,792
Cost of Goods Sold
Cost of Goods Sold= Weighted average cost per unit X number of units sold
= $ 134.9 X 120 units
= $ 16,188
Thus the Cost of goods sold under Weighted Average Cost Method is $ 16,188.
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