In: Accounting
LEFO Company uses the periodic inventory system to account for inventories. Information related to LEFO Company's inventory at March 31 is given below:
Date - Description - Units - Unit Cost
March 1 - Beg. Inventory - 10 units - $100
March 8 - Purchase - 10 units - $110
March 17 - Purchase - 10 units - $120
March 24 - Purchase - 10 units - $125
March 30 - Purchase - 10 units - $130
a. Calculate the value of ending inventory using the FIFO cost assumption if 15 units remain on hand at March 31. Calculate COGS.
b. Calculate the value of ending inventory using the LIFO cost assumption if 15 units remain on hand at March 31. Calculate COGS.
c. Calculate the value of ending inventory using the weighted-average cost cost assumption if 15 units remain on hand at March 31. Calculate COGS.
Date | Description | Units | Unit cost | Total cost |
March 1 | Beg. Inventory | 10 | 100 | 1000 |
March 8 | Purchase | 10 | 110 | 1100 |
March 17 | Purchase | 10 | 120 | 1200 |
March 24 | Purchase | 10 | 125 | 1250 |
March 30 | Purchase | 10 | 130 | 1300 |
Goods available for sale | 50 | 5850 |
a. FIFO method : In this method those goods are sold first which are purchased first and the ending inventory is from the latest purchases. | |
Ending inventory = ( 10 * 130 ) + ( 5 * 125 ) | 1925 |
COGS = Cost of goods available for sale - Ending inventory = 5850 - 1925 | 3925 |
b. LIFO method : In this method those goods are sold first which are purchased last ( i.e. recently ) and the ending inventory is from beginning inventory and earlier purchases. | |
Ending inventory = ( 10 * 100 ) + ( 5 * 110 ) | 1550 |
COGS = Cost of goods available for sale - Ending inventory = 5850 - 1550 | 4300 |
c. Weighted average cost method : | |
Weighted average cost per unit = Cost of goods available for sale / Units of goods available for sale = 5850 / 50 | 117 |
Ending inventory = Ending inventory units * Weighted average cost per unit = 15 * 117 | 1755 |