Question

INVENTORY VALUATIONS a Radios uses a periodic inventory system. The beginning inventory of Model X5 radios and the purchases for the year were as follows: (16 marks) Jan. 1 Beginning inventory 1,000 units @ $10.00 Apr. 15 Purchase 10.000 6,000 3900 500 units @ $12.00 300 units @ $13.00 June 7 Purchase Sept. 22 Purchase 1,000 units @ $14.00 14,000 Dec. 4 Purchase 700 units @ $15.00 10,500 Total available for sale in the year 3,500 units At December 31, the ending inventory consisted of 1,000 units. Determine the cost of the year-end inventory and the cost of goods sold under each of the following methods of inventory valuation (4 marks for each answer):

Answer 1

FIRST-IN, FIRST OUT METHOD Ending Inventory Units Total Units 1,000 $ 500 $ 300 $ 1,000 $ 700 $ 3,500 1,000 2,500 Jan 1 Beginning Inventory Apr 15 Purchase Jun 7 Purchase Sep 22 Purchase Dec 4 Purchase Cost of Goods Available Less: Ending Inventory Cost of Goods Sold Cost 10.00 $ 12.00 $ 13.00 $ 14.00 $ 15.00 $ $ Cost of Goods Sold Units Total 1,000 $ 10,000.00 500$ 6,000.00 300$ 3,900.00 700 $ 9,800.00 Total 10,000.00 6,000.00 3,900.00 14,000.00 10,500.00 44,400.00 300 $ 4,200.00 700 $ 10,500.00 1,000 $14,700.00 2,500 $ 29,700.00

LAST-IN, FIRST OUT METHOD Ending Inventory Units Total 1,000 $10,000.00 Cost of Goods Sold Units Total Jan 1 Beginning Inventory Apr 15 Purchase Jun 7 Purchase Sep 22 Purchase Dec 4 Purchase Cost of Goods Available Less: Ending Inventory Cost of Goods Sold Units 1,000 $ 500 $ 300 $ 1,000 $ 700 $ 3,500 1,000 Cost Total 10.00 $ 10,000.00 12.00 $ 6,000.00 13.00 $ 3,900.00 14.00 $ 14,000.00 15.00 $ 10,500.00 $ 44,400.00 500 $ 6,000.00 300 $ 3,900.00 1,000 $ 14,000.00 700 $ 10,500.00 1,000 $10,000.00 2,500 2,500 $ 34,400.00

• Total column of Ending inventory and Cost of goods sold in the above tables is calculated by multiplying units by cost per unit. E.g. LIFO ending inventory = 1,000 units × $10.00 = $10,000

WEIGHTED AVERAGE METHOD Ending Inventory Units Total Cost of Goods Sold Units Total Jan 1 Beginning Inventory Apr 15 Purchase Jun 7 Purchase Sep 22 Purchase Dec 4 Purchase Cost of Goods Available Less: Ending Inventory Cost of Goods Sold Units 1,000 $ 500 $ 300 $ 1,000 $ 700 $ 3,500 1,000 2,500 Cost 10.00 $ 12.00 $ 13.00$ 14.00 $ 15.00 $ $ Total 10,000.00 6,000.00 3,900.00 14,000.00 10,500.00 44,400.00 Avg Cost/Unit $ 12.685714 $12,685.71 (1000 units x $12.685714) Avg Cost/Unit $ 12.685714 $ 31,714.29 (2500 units x $12.685714)

Cost of Goods Available (A) Number of units available for sale (B) Avg Cost per Unit (A) = (B) $ 44,400.00 3,500 $12.685714

FIFO: Under this method of inventory valuation, the oldest purchased inventory items are recorded as sold first in the books of accounts. That is, the ending inventory will always reflect the most recent purchase cost.

LIFO: Under this method of inventory valuation, the latest purchased inventory items are recorded as sold first in the books of accounts. That is, the ending inventory will be valued at the earliest purchase cost.

Weighted average cost: Under this method, the ending inventory is valued at the weighted average cost per unit.

• Weighted average cost per unit = Cost of inventory available for sale ÷ Number of units available for sale
• Cost of inventory available for sale = Beginning inventory + net purchases