Question

Question 1

Perpetual Inventory Using FIFO Beginning inventory, purchases, and sales for Item ER27 are as follows: May 1 Inventory 80 units @ $20 Sale 9 67 units 13 78 units @ $22 Purchase 28 Sale 19 units Assuming a perpetual inventory system and using the first-in, first-out (FIFO) method, determine (a) the cost of merchandise sold on May 28 and (b) the inventory on May 31. a. Cost of merchandise sold on May 28 b. Inventory on May 31

Answer 1

Answer 1)

Calculation of Cost of goods sold and value of ending inventory under FIFO

Date	Purchases			Cost of Goods Sold			Inventory Balance
	Units	Cost per Unit	Total Cost	Units	Cost per Unit	Total Cost	Units	Cost per Unit	Total Cost
May'1							80	$ 20	$ 1,600
May'9				67	$ 20	$ 1,340	13	$ 20	$ 260
May'13	78	$ 22	$1,716				13	$ 20	$ 260
							78	$ 22	$ 1,716
May'28				13	$ 20	$ 260	72	$ 22	$ 1,584
				6	$ 22	$ 132
Total	78		$ 1,716	86		$ 1,732	72		$ 1,584

Cost of Merchandise sold on May’28= ($ 260 + $ 132)

Cost of Merchandise sold on May’28 = $ 392.  

Value of Inventory on May’31= $ 1,584

Note: Under FIFO method using perpetual inventory system, it is assumed that the units of inventory which are first bought will be sold first and so on. Therefore out of the 19 units sold on May’28, cost of goods sold will be calculated assuming that 13 units will be from the units in beginning inventory on May’1 at $ 20 per unit(being first bought) and balance 6 units will be from the 78 units bought on May’13 at $ 22 per unit.

Value of 72 units left in the end of the May will be $ 22 per unit assuming that these are from the latest bought merchandise on May’13.

Answer 2)

Calculation of Cost of goods sold and value of ending inventory under LIFO

Date	Purchases			Cost of Goods Sold			Inventory Balance
	Units	Cost per Unit	Total Cost	Units	Cost per Unit	Total Cost	Units	Cost per Unit	Total Cost
October'1							100	$ 35	$ 3,500
October'5				80	$ 35	$ 2,800	20	$ 35	$ 700
October'11	111	$ 37	$ 4,107				20	$ 35	$ 700
							111	$ 37	$ 4,107
October'21				93	$ 37	$ 3,441	20	$ 35	$ 700
							18	$ 37	$ 666
Total	111		$ 4,107	173		$ 6,241	38		$ 1,366

Cost of Merchandise sold on October’21= $ 3,441

Value of Inventory on October’31= ($ 700 + $ 666)

Value of Inventory on October’31= $ 1,366

Note: Under LIFO method using perpetual inventory system, it is assumed that the units of inventory which are Latest bought will be sold first and moving backwards. Therefore Cost of 93 units sold on October’21 will be from 111 units bought on October’11 (i.e. at $ 37 per unit)

Value of 38 units left in the end of the October will include 20 units from beginning inventory at $ 35 per unit and 18 units from the balance of inventory bought on October’11 at $ 37 per unit.