Question

Exercise 6. A company's inventory records indicate the following data for the month of April: April 1 April 5 April 9 April 14 April 20 April 30 Beginning Purchase Sale Purchase Sale Purchase 350 units at $18 each 290 units at $20 each 500 units at $55 each 250 units at $22 each 200 units at $55 each 240 units at $25 each Compute inventory and cost of goods sold in a perpetual system using the methods of FIFO, LIFO, and weighted average.

Answer 1

FIFO Method: FIFO stands for First In First Out which means that cost of goods sold must consider cost of those goods initially. As a result, ending inventory will contain cost of recent purchases. Under perpetual method, inventory records are updated continously. Purchases Cost of Goods Sold Balance Units Rate Amount Units Rate Amount Units Rate Amount Apr. 1 350 $18.00 $6,300 Apr. 5 290 $20.00 $5,800 350 290 640 $18.00 $20.00 $6,300 $5,800 $12,100 Apr. 9 350 150 500 $18.00 $20.00 $6,300 $3,000 $9,300 140 $20.00 $2,800 Apr. 14 250 $22.00 $5,500 140 250 390 $20.00 $22.00 $2,800 $5,500 $8,300 Apr. 20 140 60 200 $20.00 $22.00 $2,800 $1,320 $4,120 190 $22.00 $4,180 Apr. 30 240 $25.00 $6,000 190 240 430 $22.00 $25.00 700 $13,420 (Cost of Goods Sold) $4,180 $6,000 $10,180 (Ending Inventory)

LIFO Method: LIFO stands for Last In First Out which means that cost of goods sold must consider cost of those goods recently. As a result, ending inventory will contain cost of initial purchases or beginning inventory. Under perpetual method, inventory records are updated continously. Purchases Cost of Goods Sold Ending Inventory Units Rate Amount Units Rate Amount Units Rate Amount Apr. 1 $18.00 $6,300 Apr. 5 290 $20.00 $5,800 350 $18.00 $6,300 290 $20.00 $5,800 640 $12,100 Apr. 9 290 $20.00 $5,800 210 $18.00 $3,780 500 $9,580 140 $18.00 $2,520 350 Apr. 14 250 $22.00 $5,500 140 250 $18.00 $22.00 $2,520 $5,500 $8,020 390 Apr. 20 200 $22.00 $4,400 140 50 190 $18.00 $22.00 $2,520 $1,100 $3,620 Apr. 30 240 $25.00 $6,000 140 50 240 430 $18.00 $22.00 $25.00 $2,520 $1,100 $6,000 $9,620 (Ending Inventory) 700 $13,980 (Cost of Goods Sold)

Weighted Average Method: Under weighted average inventory method, total value of purchases shall be divided by total number of units purchased to calculate unit cost. Cost of goods sold shall be calculated by multiplying number of units sold by unit cost calculated just before the date of sale perpetully. Purchases Cost of Goods Sold Ending Inventory Units Rate Amount Units Rate Amount Units Rate Amount Apr. 1 350 $18.0000 $6,300 Apr. 5 290 $5,800 640 $18.9063 $12,100 [Rate = $12100 / $18.9063] Apr. 9 500 $18.9063 $9,453 140 $18.9063 $2,647 [Rate = $2647 / $18.9063] Apr. 14 250 $22. $5,500 $20.8894 $8,147 [Rate = $8147 / $20.8894] Apr. 20 200 $20.8894 $4,178 190 $20.8894 $3,969 [Rate = $3969 / $20.8894] Apr. 30 240 $25 $6,000 430 $23.1837 $9,969 [Rate = $9969 / $23.1837] 700 $13,631 430 $23.1837 $9,969 (Total Cost of Goods Sold) (Ending Inventory) $20 390