Question

Exercise 8-17 FIFO, LIFO, and average cost methods [LO8-1, 8-4] Causwell Company began 2018 with 14,000 units of inventory on hand. The cost of each unit was $4.00. During 2018 an additional 34,000 units were purchased at a single unit cost, and 24,000 units remained on hand at the end of 2018 (24,000 units therefore were sold during 2018). Causwell uses a periodic inventory system. Cost of goods sold for 2018, applying the average cost method, is $136,800. The company is interested in determining what cost of goods sold would have been if the FIFO or LIFO methods were used Required: 1. Determine the cost of goods sold for 2018 using the FIFO method. [Hint: Determine the cost per unit of 2018 purchases.] 2. Determine the cost of goods sold for 2018 using the LIFO method. (Do not round intermediate calculations.) FIFO cost of goods sold LIFO cost of goods sold

Answer 1

1)

FIFO Cost of good sold

$120,000

Explanation:-

FIFO cost of good sold:
14,000 units @$4	$56,000
Add: 10,000 units @ $6.4 (see note 1 and note 2)	$64,000
Cost of good sold	$120,000

Note 1) 24,000 - 14,000 = 10,000 units

Note 2)

Calculation to determine cost per unit of year 2018 purchase:
Cost of good sold	weighted-average cost per unit / Number of units sold
Cost of good sold	$136,800/ 24,000 = $5.7 per unit
Cost of goods available for sale	(14,000 +34,000) × $5.7 = $273,600
Cost of purchase	$273,600 - $56,000(beginning inventory) = $217,600
Cost per unit of year 2018 purchase	cost of purchase/ unit purchase
Cost per unit of year 2018 purchase	$217,600/ 34,000
Cost per unit of year 2018 purchase	$6.4

2)

LIFO Cost of good sold

$153,600

Explanation:-

LIFO Cost of good sold = 24,000 @ $6.4 = $153,600