Question

The following data relates to the inventory and purchases of item 125 for Sanders Company during May:

Inventory, May 1	520 units at $21.00
Purchases:
May 10	380 units at $20.75
May 19	280 units at $20.35
May 25	320 units at $20.40
Inventory, May 31	460 units

INSTRUCTIONS

Determine the cost of the ending inventory on May 31 under each of the following methods: (a) average cost method; (b) first-in, first-out (FIFO) method; and (c) last-in, first-out (LIFO) method. When using the average cost method, compute the unit cost to two decimal places.

Analyze: Which inventory amount will result in the highest income for the period?

Answer 1

Inventory valuation As per FIFO under periodic method number of cost per Total cost Particulars units unit 520 $ 21.00 $10,920.00 inventory may 1 First purchase Second purchase Third Purchase Total less Closing inventory cost of goods sold 380 280 320 $ 20.75 $ 20.35 $ 20.40 $ 7,885.00 $ 5,698.00 $ 6,528.00 $31,031.00 $ 9,377.00 $21,654.00 1500 460 1040 Computation of ending inventory value third purchase = 320*20.40 $ 6,528 2nd purchase = 140*20.35 $ 2,849 Total $ 9,377

Inventory valuation As per LIFO under periodic method number cost per Total cost Particulars of units unit 520 $ 21.00 $ 10,920.00 inventory may 1 First purchase Second purchase Third Purchase Total less Closing inventory cost of goods sold 380 280 320 $ 20.75 $ 20.35 $ 20.40 $ 7,885.00 $ 5,698.00 $ 6,528.00 $ 31,031.00 $ 9,660.00 $ 21,371.00 1500 460 1040 Computation of ending inventory value Inventory may 1 = 460*$21 $ 9,660 Total $ 9,660

Inventory valuation As per Average under periodic method number cost per Total cost Particulars of units 1 unit inventory Jan 1 520 $ 21.00 $ 10,920 First purchase 380 $ 20.75 $ 7,885 Second purchase 280 $ 20.35 $ 5,698 Fourth Purchase 320 $ 20.40 $ 6,528 Total 1500 $ 20.69 $ 31,031 less Closing inventory 460 $ 20.69 $ 9,516.17 cost of goods sold 1040 $ 20.69 $ 21,514.83 Average cost = Total cost / total unis

Under LIFO method represents the highest profit because lowest of cost of goods sold .