Question

A201 HMWK Chapter 6 Spiceland Problem During 20x1, Wright Company sells 320 remote control airplanes for $100 cach. The company has the following inventory purchase transactions for 20x1. Date Transaction Number of Units Unit Cost Total Cost Beginning inventory 50 $72 $ 3,600 Mays Purchase 15,000 Nov3 Purchase 200 $26.600 Calculate ending inventory and cost of goods sold for 20xl assuming the company uses a periodic inventory system and used: (a) FIFO, (b) LIFO. (c) Weighted average methods.

Answer 1

Answer:-

Ending inventory Calculation

Using FIFO (First in First out). The company sold 320

The company has total inventory of 350
Therefore the ending inventory would be 350-320= 30 units.
In FIFO the ending inventory is the value of latest inventory ie. the one which was purchased on Nov 3rd.

The value of ending inventory under FIFO would be= 30 x $ 80 = $ 2400
As the cost per unit inventory that was purchased last was $80.

Using LIFO
The inventory left was the same as 30 units
In LIFO the ending inventory is the value of beginning inventory ie. the one which was on January 1.
The value of the ending inventory = 30 x 72 $ = $ 2160.

Under Weighted average methods

Ending inventory is calculated as:-

The total cost incurred = 50 x $ 72 + 200 x $ 75 + 100 x $ 80 = $ 26600

Therefore average cost per unit is $ 26600 / 350 = $ 76

As the ending inventory is 30 units therefore price of ending inventory = 30 x $ 76 =  $ 2280.

COGS Calculation:-

Using FIFO:-

COGS of 320 Units sold = 50 x $ 72 + 200 x $ 75 + 70 x $ 80 = $ 3600 + $ 15000 + $ 5600 = $ 24200.

Using LIFO:-
COGS of 320 units sold = 100 x $ 80 + 200 x $ 75 + 20 x $ 72 = $ 8000 + $ 15000 + $ 1440 = $ 24440.

Using Weighted average method:-

As we calculated above that the average price per unit was $ 76.

COGS of 320 units sold = 320 x $ 76 = $ 24320

We can observe in the scenario of rising inflation ie when the prices are increasing

For Ending inventory :- FIFO> Wt Average > LIFO

Whereas for COGS :- LIFO > Wt Average > FIFO