Question

Vaughn Manufacturing had a beginning inventory of 125 units of Product RST at a cost of $9 per unit. During the year, purchases were: Feb. 20 May 5 660 units at $10 520 units at $11 Aug. 12 Dec. 8 470 units at $12 125 units at $13 Vaughn uses a periodic inventory system. Sales totaled 1,510 units. Determine the cost of goods available for sale. The cost of goods available for sales Calculate Average Cost. (Round answer to 3 decimal places, es. 5.125.) Average Costs

Answer 1

Ans. 1		Units	Rate	Total
	Beginning inventory	125	$9.00	$1,125
	Purchases:
	20-Feb	660	$10.00	$6,600
	05-May	520	$11.00	$5,720
	12-Aug	470	$12.00	$5,640
	08-Dec	125	$13.00	$1,625
	Cost of goods available for sale	1900		$20,710
Ans. 2	Average cost =   Total cost of goods available for sale / Units available for sale
	$20,710 / 1,900
	$10.900	per unit
Ans. 3		FIFO	LIFO	AVERAGE - COST
	The Ending inventory	$4,805	$3,775	$4,251
	The Cost of goods sold	$15,905	$16,935	$16,459
	*WORKING NOTES:
1	FIFO:	Cost of goods available for sale			Cost of goods sold - Periodic FIFO			Ending inventory - Periodic FIFO
		Units	Rate	Total	Units	Rate	Total	Units	Rate	Total
	Beginning inventory	125	$9.00	$1,125	125	$9.00	$1,125	0	$9.00	$0
	Purchases:
	20-Feb	660	$10.00	$6,600	660	$10.00	$6,600	0	$10.00	$0
	16-May	520	$11.00	$5,720	520	$11.00	$5,720	0	$11.00	$0
	03-Oct	470	$12.00	$5,640	205	$12.00	$2,460	265	$12.00	$3,180
	11-Dec	125	$13.00	$1,625	0	$13.00	$0	125	$13.00	$1,625
	Total	1900		$20,710	1510		$15,905	390		$4,805
	*In FIFO method the units that have purchased first, are released the first one and the ending inventory
	units remain from the last purchases.
2	LIFO:	Cost of goods available for sale			Cost of goods sold - Periodic LIFO			Ending inventory - Periodic LIFO
		Units	Rate	Total	Units	Rate	Total	Units	Rate	Total
	Beginning inventory	125	$9.00	$1,125	0	$9.00	$0	125	$18.80	$1,125
	Purchases:
	20-Feb	660	$10.00	$6,600	395	$10.00	$3,950	265	$19.80	$2,650
	16-May	520	$11.00	$5,720	520	$11.00	$5,720	0	$20.80	$0
	03-Oct	470	$12.00	$5,640	470	$12.00	$5,640	0	$21.80	$0
	11-Dec	125	$13.00	$1,625	125	$13.00	$1,625	0	$22.80	$0
	Total	1900		$20,710	1510		$16,935	390		$3,775
	*In LIFO method the units that have purchased last, are released the first one and ending inventory units
	remain from the first purchase.
3	AVERAGE COST :
	Cost of goods sold = Units sold * Average cost per unit
	1,510 * $10.900
	$16,459
	Ending inventory = Cost of goods available for sale - Cost of goods sold
	$20,710 - $16,459
	$4,251
Ans. 4	LIFO results in the lowest inventory amount for the balance sheet.
	FIFO results in the lowest cost of goods sold for the income statement.