Question

The units of an item available for sale during the year were as follows: Jan. 1 Inventory 50 units at $128 Mar. 10 Purchase 50 units at $138 Aug. 30 Purchase 10 units at $142 Dec. 12 Purchase 90 units at $148 There are 80 units of the item in the physical inventory at December 31. The periodic inventory system is used. Determine the ending inventory cost and the cost of goods sold by three methods. Round interim calculations to one decimal and final answers to the nearest whole dollar.

Cost of Ending Inventory and Cost of Goods Sold

Inventory Method Ending Inventory Cost of Goods Sold

First-in, first-out (FIFO) $

$ Last-in, first-out (LIFO)

Weighted average cost

Answer 1

FIFO method.

Under FIFO method, units purchased first is sold out first. So the ending inventory will be the units that is purchased last. In the above question, total units available for sale = 200 units out of which 80 units are ending units which means that remaining 120 units are sold out.

So under FIFO, ending inventory of 80 units consists of last purchased items. It is given that on December 12, 90 units are purchased. So out of this 80 units are ending inventory.

Ending inventory = 80 units x 148

Ending inventory = $ 11,840

LIFO method.

Under this method, last purchased items are sold out first. So the ending inevntiry of 80 units consists of first available or purchased units. So ending inventory of 80 units consists of 50 units from beginning inventory and balance 30 units from March 10 purchase.

Ending inventory = ( 50 units x 128)+(30 units x 138)

Ending inventory = $ 10,540

AVERAGE method.

Under this method, average cost per unit is calculated first. It is calculated by dividing the total cost of goods available for sale by total units available for sale. Then the value is multiplied by the ending units to get ending inventory.

Total units available for sale = 50 + 50 + 10 + 90

Total units available for sale = 200 units.

Total cost of goods available for sale = ( 50 units x 128) +(50 units x 138)+(10 units x 142)+(90 units x 148)

Total cost of goods available for sale= $ 28,040

Average cost per unit = 28,040/200

Average cost per unit = 140.2

Ending inventory = 80 units x 140.2

Ending inventory = 11,216.

SUMMARY:

FIFO method = $ 11,840.

LIFO method = $ 10,540

Average method = $ 11,216