Question

Spotter Corporation reported the following for June in its periodic inventory records.

Date			Description	Units	Unit Cost			Total Cost
June	1		Beginning	18	$	9.60		$	172.80
	11		Purchase	54		10.60			572.40
	24		Purchase	28		12.60			352.80
	30		Ending	32

Required:

1. Calculate the cost of ending inventory and the cost of goods sold under the (a) FIFO, (b) LIFO, and (c) weighted average cost methods. (Do not round your intermediate calculations. Round "Weighted Average Cost" to 2 decimal places.)

2. Which of the three methods will lead to reporting the highest net income?

• FIFO

• LIFO

• Weighted Average Cost

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Answer 1

1.

		Ending Inventory	Cost of Goods Sold
a.	FIFO	$                  395.20	$                      702.80
b.	LIFO	$                  321.20	$                      776.80
c.	Weighted-average cost	$                  351.36	$                      746.64

FIFO method will lead to reporting the highest net income since the cost of goods sold is the lowest.

Working:

Units sold = Beginning balance + Purchases - Ending balance = 18 + (54 + 28) - 32 = 68

a.	Periodic FIFO
	Beg. Balance / Purchase	Cost of Goods Sold			Inventory on Hand
		QTY	Unit Cost	Tot. Cost	QTY	Unit Cost	Tot. Cost
	Jun. 1	18	9.60	172.80
	11	50	10.60	530.00	4	10.60	42.40
	24				28	12.60	352.80
	Total	68		702.80	32		395.20
b.	Periodic LIFO
	Beg. Balance / Purchase	Cost of Goods Sold			Inventory on Hand
		QTY	Unit Cost	Tot. Cost	QTY	Unit Cost	Tot. Cost
	Jun. 1				18	9.60	172.80
	11	40	10.60	424.00	14	10.60	148.40
	24	28	12.60	352.80
	Total	68		776.80	32		321.20

c. Weighted-average cost = ($172.80 + $572.40 + $352.80)/(18 + 54 + 28) = $1098/100 = $10.98

Cost of goods sold = 68 x $10.98 = $746.64

Ending inventory = 32 x $10.98 = $351.36