Question

Henry Company reported the following information for 2017:

TRANSACTIONS UNITS UNIT COST

Beginning Inventory – January 1 6,000 $ 3.00

Purchases

April 10 9,000 3.50

July 20 5,000 3.80

November 24 5,000 4.00

During 2017, Henry sold 12,000 units. The company uses a periodic inventory system.

REQUIRED:

What is the value of ending inventory and cost of goods sold for 2017 under the following assumptions:

1. FIFO
2. LIFO
3. Weighted-Average

Answer 1

Solution:

	FIFO	LIFO	Weighted average
Cost of goods sold	39,000	46,000	42,480
Ending inventory	49,500	42,500	46,020

Explanation:

Beginning inventory + purchases = 6000 + 9000 + 5000 + 5000 = 25,000 units

sales = 12,000 units

Ending inventory = 25000 - 12000 = 13,000 units

FIFO:

Cost of goods sold = (6000 x 3) + (6000*x 3.5) = 18000 + 21000 = 39,000

*6000 = 12000 - 6000

Ending inventory = (3000 x 3.5) + (5000 x 3.8) + (5000 x 4) = 10500 + 19000 + 20000 = 49,500

3000 = 9000 - 6000

LIFO:

Cost of goods sold = (5000 x 4) + (5000 x 3.8) + (2000 x 3.5) = 20000 + 19000 + 7000 = 46,000

2000 = 12000 - 5000 - 5000

Ending inventory = (7000 x 3.5) + (6000 x 3) = 24500 + 18000 = 42,500

7000 = 9000 - 2000

Weighted average method

Average price = total cost / total units

= [(6000 x 3) + (9000 x 3.5) + (5000 x 3.8) + (5000 x 4)] / (6000 + 9000 + 5000 + 5000)

= (18000 + 31500 + 19000 + 20000) / 25000

= 88500 / 25000

= 3.54

Cost of goods sold = 12000 x 3.54 = 42,480

Ending inventory = 13000 x 3.54 = 46,020