Question

The Shirt Shop had the following transactions for T-shirts for 2018, its first year of operations:

Jan. 20	Purchased	490	units	@	$	8	=	$	3,920
Apr. 21	Purchased	110	units	@	$	10	=		1,100
July 25	Purchased	250	units	@	$	12	=		3,000
Sept. 19	Purchased	90	units	@	$	13	=		1,170

During the year, The Shirt Shop sold 760 T-shirts for $18 each.

Required

1. Compute the amount of ending inventory The Shirt Shop would report on the balance sheet, assuming the following cost flow assumptions: (1) FIFO, (2) LIFO, and (3) weighted average. Round intermediate calculations to 2 decimal places and final answers to the nearest whole dollar amount.

	FIFO LIFO Weighted Average Ending inventory

1. What is the FIFO, LIFO and the Weighted Avg.

Answer 1

FIFO: Under the FIFO method, it is assumed that the goods purchased first are the goods sold first. So the ending inventory would represent the goods purchased later in point of time.

LIFO: Under the LIFO method, it is assumed that the goods purchased last are the goods sold first. So the ending inventory would represent the goods which are purchased first in point of time.

Weighted average: Under the weighted average cost method, weighted average cost per unit is found for units available for sale and the weighted average cost arrived is used to calculate ending inventory and cost of goods sold.

Cost Cost of goods available for sale Jan. 20 Apr. 21 July 25 Sept. 19 Cost of goods available for sale Units 490 $ 110 $ 250 $ 90 $ 940 Per unit 8.00 10.00 12.00 13.00 $ $ $ $ 3,920 1,100 3,000 1,170 9,190 Ending inventory in units 180 Units (940 units - 760 units) Cost 1) FIFO - Ending inventory Date July. 25 Sept. 19 Ending inventory Units 90$ 90 $ 180 Per unit 12.00 13.00 $ $ 1,080 1,170 2,250 Cost 2) LIFO - Ending inventory Date Jan. 20 Ending inventory Units 180 180 Per unit 8.00 $ $ 1,440 1,440 Average cost per unit Weighted average cost per unit = Total cost of goods of available for sale/Total units $ 9.78 ($ 9,190 / 940 units) 3) Average cost Ending inventory $ 1,760 (180 units * $ 9.78) fe FiFocats FIFO LIFO LIFO te Weighted Average 1,760 weighted Average van Ending Inventory 1,440 $