Question

2013. Ob availabl a. Compute the inventory balance at the end of the accounting period using average cost. b. Compute the cost of goods sold at the end of the accounting period using average cost. c. Compute the inventory balance at the end of the accounting period using FIFO. d. Compute the cost of goods sold at the end of the accounting period using FIFO, e. Compute the inventory balance at the end of the accounting period using LIFO. f. Compute the cost of goods sold at the end of the accounting period using LIFO. 100 140 200 u 160

Answer 1

1. Average Cost Method

The average cost method assigns a cost to inventory items based on the total cost of goods purchased or produced in a period divided by the total number of items purchased or produced.

Particulars	Units	Rate	Cost
Opening balance	100	5	500
1	140	7	980
2	200	8	1600
3	160	8.5	1360
Total	600		4440

Hence Average Cost    =Total cost/Total units

                                        =4440/600

                                        =7.4

Closing inventory balance

Opening Inventory	100
Total number of units Purchased	500
Total number of units sold	530
Closing Inventory	70

a) Inventory balance at the end of accounting period = Closing Inventory x average cost

                                                                                                          =70x7.4=518

b) Cost of goods sold = units sold x average cost     

                                  =530x7.4=3922

2. Last In, First Out (LIFO)

Last in, first out (LIFO) is a method used to account for inventory that records the most recently produced items as sold first. Under LIFO, the cost of the most recent products purchased (or produced) are the first to be expensed as cost of goods sold (COGS), which means the lower cost of older products will be reported as inventory.

c) Inventory balance at the end of accounting period = Closing Inventory x cost

                                                                                           = 70x5=350

d) Cost of goods sold will be as below

No of Units Lot	Rate	Cost
160	8.5	1360
200	8	1600
140	7	980
30	5	150
Cost of goods sold	4090

3. First In, First Out (FIFO)

First In, First Out, commonly known as FIFO, is an asset-management and valuation method in which assets produced or acquired first are sold, used, or disposed of first.

e) Inventory balance at the end of accounting period = Closing Inventory x cost

                                                                                           = 70x8.5=595

f) Cost of goods sold will be as below

No of Units Lot	Rate	Cost
100	5	500
140	7	980
200	8	1600
90	8.5	765
Cost of goods sold	3845