Question

Altira Corporation provides the following information related to its merchandise inventory during the month of August 2021:
 

Aug.1	Inventory on hand—3,800 units; cost $7.10 each.
8	Purchased 19,000 units for $7.30 each.
14	Sold 15,200 units for $13.80 each.
18	Purchased 11,400 units for $7.40 each.
25	Sold 14,200 units for $12.80 each.
28	Purchased 5,800 units for $5.80 each.
31	Inventory on hand—10,600 units.

 
Required:
Using calculations based on a periodic inventory system, determine the inventory balance Altira would report in its August 31, 2021, balance sheet and the cost of goods sold it would report in its August 2021 income statement using each of the following cost flow methods.

Answer 1

Answer)

Cost of goods and value of ending inventory using FIFO method, periodic inventory system

Cost of Goods sold

Under FIFO method using periodic inventory system, cost of goods sold is calculated on the assumption that units of inventory which are first bought will be sold first and so on. Thus the cost of goods sold will be from the units of inventory which are first and moving forward.

Date	Particulars	Number of units	Cost per unit (In $)	Total cost   (In $)
Aug'1	Beginning Inventory	3,800	7.10	26,980.00
Aug'8	Purchase	19,000	7.30	138,700.00
Aug'18	Purchase	6,600	7.40	48,840.00
Total	29,400		214,520

Therefore the cost of goods sold using FIFO method, periodic inventory system is $ 214,520

Value of ending inventory

Under FIFO method using periodic inventory system, Value of ending inventory is calculated on the assumption that units of inventory which are first bought will be sold first and so on. Thus value of ending inventory will be from the units of inventory which are Latest bought and moving backwards.

Date	Particulars	Number of units	Cost per unit (In $)	Total cost   (In $)
Aug'18	Purchase	4,800	7.40	35,520.00
Aug'28	Purchase	5,800	5.00	29,000.00
Total	10,600		64,520

Therefore value of ending inventory using FIFO method, periodic inventory system is $ 64,520.

Cost of goods and value of ending inventory using LIFO method, periodic inventory system

Cost of Goods sold

Under LIFO method using periodic inventory system, cost of goods sold is calculated on the assumption that units of inventory which are latest bought will be sold first and so on. Thus the cost of goods sold will be from the units of inventory which are latest and moving backwards.

Date	Particulars	Number of units	Cost per unit (In $)	Total cost   (In $)
Aug'8	Purchase	12,200	7.30	89,060.00
Aug'18	Purchase	11,400	7.40	84,360.00
Aug'28	Purchase	5,800	5.00	29,000.00
Total	29,400		202,420

Therefore the cost of goods sold using LIFO method, periodic inventory system is $ 202,420.

Value of ending inventory

Under LIFO method using periodic inventory system, Value of ending inventory is calculated on the assumption that units of inventory which are latest bought will be sold first and so on. Thus value of ending inventory will be from the units of inventory which are first bought and moving forwards.

Date	Particulars	Number of units	Cost per unit (In $)	Total cost   (In $)
Aug'1	Beginning Inventory	3,800	7.10	26,980.00
Aug'8	Purchase	6,800	7.30	49,640.00
Total	10,600		76,620

Therefore value of ending inventory using LIFO method, periodic inventory system is $ 76,620.

Calculation of cost of goods sold using Average cost inventory method, periodic inventory system

Under average cost inventory method using periodic inventory system, value of ending inventory and cost of goods sold is calculated on the basis of a weighted average cost. Such cost is calculated by dividing the aggregate cost of units in the beginning inventory and cost units purchased during the period by the aggregate number of units in the beginning inventory and units purchased during the period.

Date	Particulars	Number of units	Cost per unit (In $)	Total cost   (In $)
Aug'1	Beginning Inventory	3,800	7.10	26,980.00
Aug'8	Purchase	19,000	7.30	138,700.00
Aug'18	Purchase	11,400	7.40	84,360.00
Aug'28	Purchase	5,800	5.00	29,000.00
Total	40,000		279,040

Weighted Average cost = $ 279,040/ 40,000 units

                                           = $ 6.98 per unit (rounded off)

Cost of goods sold = Number of units sold X weighted average cost per unit

                                  = 29,400 units X $ 6.976 per unit

                                  = $ 205,094

Therefore cost of goods sold under average cost method is $ 205,094

Value of ending inventory = Number of in ending inventory X weighted average cost per unit

                                                = 10,600 units X $ 6.976 per unit

                                                 = $ 73,946

Therefore value of ending inventory under average cost method is $ 73,946

Note: although the weighted average cost has been rounded off to two decimal places, but cost of goods sold and ending inventory has been calculated on the basis of rate up to 3 decimal places so that the following equation holds.

Total cost of units in beginning inventory and units purchased during the year = Cost of goods sold + value of ending inventory

               $ 279,040 = $ 205,094 + $ 73,946.