Question

Lopez Company reported the following current-year data for its only product. The company uses a periodic inventory system, and its ending inventory consists of 360 units—120 from each of the last three purchases.

Jan.	1	Beginning inventory	220	units	@ $2.80	=	$	616
Mar.	7	Purchase	480	units	@ $3.25	=		1,560
July	28	Purchase	1,120	units	@ $3.30	=		3,696
Oct.	3	Purchase	1,000	units	@ $3.60	=		3,600
Dec.	19	Purchase	400	units	@ $3.70	=		1,480
		Totals	3,220	units			$	10,952

  
Determine the cost assigned to ending inventory and to cost of goods sold for the following. (Do not round intermediate calculations and round your answers to 2 decimal places.)
  

Which method yields the highest net income?
  

• LIFO

• Specific identification

• FIFO

• Weighted average

Answer 1

Solution 1:

Computation of COGS and ending inventory - Periodic FIFO
Particulars	Cost of goods available for sale			Cost of goods sold			Ending Inventory
	Nos of units	Unit Cost	Cost of goods available for sale	Nos of units sold	Unit Cost	Cost of goods sold	Nos of units in ending inventory	Unit Cost	Ending inventory
Beginning inventory	220	$2.80	$616	220	$2.80	$616.00	0	$2.80	$0.00
Purchases:
7-Mar	480	$3.25	$1,560	480	$3.25	$1,560.00	0	$3.25	$0.00
28-Jul	1120	$3.30	$3,696	1120	$3.30	$3,696.00	0	$3.30	$0.00
3-Oct	1000	$3.60	$3,600	1000	$3.60	$3,600.00	0	$3.60	$0.00
19-Dec	400	$3.70	$1,480	40	$3.70	$148.00	360	$3.70	$1,332.00
Total	3220		$10,952	2860		$9,620.00	360		$1,332.00

Computation of COGS and ending inventory - Periodic LIFO
Particulars	Cost of goods available for sale			Cost of goods sold			Ending Inventory
	Nos of units	Unit Cost	Cost of goods available for sale	Nos of units sold	Unit Cost	Cost of goods sold	Nos of units in ending inventory	Unit Cost	Ending inventory
Beginning inventory	220	$2.80	$616	0	$2.80	$0.00	220	$2.80	$616.00
Purchases:
7-Mar	480	$3.25	$1,560	340	$3.25	$1,105.00	140	$3.25	$455.00
28-Jul	1120	$3.30	$3,696	1120	$3.30	$3,696.00	0	$3.30	$0.00
3-Oct	1000	$3.60	$3,600	1000	$3.60	$3,600.00	0	$3.60	$0.00
19-Dec	400	$3.70	$1,480	400	$3.70	$1,480.00	0	$3.70	$0.00
Total	3220		$10,952	2860		$9,881.00	360		$1,071.00

Computation of COGS and ending inventory - Periodic Weighted Average cost method
Particulars	Cost of goods available for sale			Cost of goods sold - Average cost			Ending Inventory - Average cost
	Nos of units	Unit Cost	Cost of goods available for sale	Nos of units sold	Unit Cost	Cost of goods sold	Nos of units in ending inventory	Unit Cost	Ending inventory
Beginning inventory	220	$2.80	$616
Purchases:
7-Mar	480	$3.25	$1,560
28-Jul	1120	$3.30	$3,696
3-Oct	1000	$3.60	$3,600
19-Dec	400	$3.70	$1,480
Total	3220	$3.40	$10,952	2860	$3.40	$9,728	360	$3.40	$1,224

Computation of COGS and ending inventory - Specific identification
Particulars	Cost of goods available for sale			Cost of goods sold			Ending Inventory
	Nos of units	Unit Cost	Cost of goods available for sale	Nos of units sold	Unit Cost	Cost of goods sold	Nos of units in ending inventory	Unit Cost	Ending inventory
Beginning inventory	220	$2.80	$616	220	$2.80	$616.00	0	$2.80	$0.00
Purchases:
7-Mar	480	$3.25	$1,560	480	$3.25	$1,560.00	0	$3.25	$0.00
28-Jul	1120	$3.30	$3,696	1000	$3.30	$3,300.00	120	$3.30	$396.00
3-Oct	1000	$3.60	$3,600	880	$3.60	$3,168.00	120	$3.60	$432.00
19-Dec	400	$3.70	$1,480	280	$3.70	$1,036.00	120	$3.70	$444.00
Total	3220		$10,952	2860		$9,680.00	360		$1,272.00

Solution 2:

Cost of goods sold under FIFO method is lowest, therefore FIFO method yields the highest net income.