Question

Given the following information, determine the cost of ending inventory at December 31:

December 2: 5 units were purchased at $7 per unit.
December 9: 10 units were purchased at $9.40 per unit.

December 11: 12 units were sold at $35 per unitDecember 15: 20 units were purchased at $10.15 per unit
December 22: 18 units were sold at $35 per unit

Use the above information for parts a, b and c.

a. Use the LIFO , Last In First Out, inventory flow and perpetual inventory method to value the ending inventory.   SHOW YOUR WORK

b. Use the FIFO, First In First Out, inventory flow and perpetual inventory method to value the ending inventory. SHOW YOUR WORK

c. Use the weighted average inventory flow and perpetual inventory method to value the ending inventory. SHOW YOUR WORK

Answer 1

ANSWERS:

a. LIFO PERPETUAL METHOD

Under the LIFO Perpetual method the units purchased latest will be sold first. Under perpetual system the inventory will be upadated after each sales and purcahses rather than at the end of the period.

So 12 units sold on dec 11 were sold from

• 10 units of dec 9 purchases at cost per unit of $9.40
• 2 units of dec 2 purchases at cost per unit of $7

And 18 units sold on dec 22 were sold from

• 18 units of dec 15 purchases at cost per unit of $10.15

So the remaining units in ending inventory are

• 0 units of dec 9 purchases
• 3 units of dec 2 purchases at cost per unit of $7
• 2 units of dec 15 purchases at cost per unit of $10.15

So,

• COST OF ENDING INVENTORY AT 31 DEC = (3 units*$7)+(2 units*$10.15) = $41.3

b. FIFO PERPETUAL METHOD

Under the FIFO Perpetual method the units purchased first will be sold first. Under perpetual system the inventory will be upadated after each sales and purcahses rather than at the end of the period.

So 12 units sold on dec 11 were sold from

• 5 units of dec 2 purchases at cost per unit of $7
• 7 units of dec 9 purchases at cost per unit of $9.40

And 18 units sold on dec 22 were sold from

• 3 units of dec 9 purchases at cost per unit of $9.40
• 15 units of dec 15 purchases at cost per unit of $10.15

So the remaining units in ending inventory are

• 0 units of dec 9 purchases
• 0 units of dec 2 purchases
• 5 units of dec 15 purchases at cost per unit of $10.15

So,

• COST OF ENDING INVENTORY AT 31 DEC = 5 units of dec 18 purchases*$10.15 = $50.75

c. Weighted average cost method

Under weighted average the Value of ending inventory is found by multiplying the units in ending inventory with Weighted average cost per unit. Under the perpetual system the weighted average cost must be updated after each purchase.

Weighted average cost = Total cost of purchases/Total units purchased

• At dec 2: 5 units were purchased at $7 per unit
• At dec 9 :10 units were purchased at $9.40 per unit
• So the total cost of purchases at dec 9 = (5 units*$7)+(10 units*$9.40) = $129
• Total units at dec 9 = 5 units+10 units = 15 units
• So, weighted average cost at dec 9 = Total cost of purchases/Total units purchased = $129/15 units = $8.6
• At dec 11 : 12 units were sold which had  weighted average cost of $8.6 per unit
• Remaining units in inventory at dec 11 = 15 units-12 units = 3 units
• Total cost of inventory at dec 11 =$129-(12 units*$8.6) = $25.8
• At dec 15: 20 units were purchased at cost per unit of $10.15
• So, the total cost of purchases at dec 15 = $25.8+(20 units*$10.15) = $228.8
• Total units remaining in inventory = 3 units+20 units = 23 units
• So,weighted average cost at dec 15= Total cost of purchases/Total units purchased = $228.8/23 units = $9.947826087
• At dec 22 :18 units were sold which had weighted average cost of $9.947826087
• Remaining units in inventory at ddec 22 = 23 units-18 units = 5 units

So,

• COST OF ENDING INVENTORY AT 31 DEC = 5 units*$9.947826087 = $49.73913044