Question

Warnerwoods Company uses a periodic inventory system. It entered into the following purchases and sales transactions for March.

Date

Activities

Units Acquired at Cost

Units Sold at Retail

Mar.

1

Beginning inventory

100

units

@ $50.00 per unit

Mar.

5

Purchase

400

units

@ $55.00 per unit

Mar.

9

Sales

420

units

@ $85.00 per unit

Mar.

18

Purchase

120

units

@ $60.00 per unit

Mar.

25

Purchase

200

units

@ $62.00 per unit

Mar.

29

Sales

160

units

@ $95.00 per unit

Totals

820

units

580

units

  
For specific identification, the March 9 sale consisted of 80 units from beginning inventory and 340 units from the March 5 purchase; the March 29 sale consisted of 40 units from the March 18 purchase and 120 units from the March 25 purchase.

3. Compute the cost assigned to ending inventory using (a) FIFO, (b) LIFO, (c) weighted average, and (d) specific identification. (Round your average cost per unit to 2 decimal places.)

     

Answer 1

(a)

Under the FIFO method of inventory valuation, units sold consists of the units from beginning inventory and the earliest purchases. Ending inventory consists of the units from recent purchases.

Ending inventory in units = Units available for sale - Units sold

= 820 - 580

= 240

Ending inventory of 240 units consists of 200 units March 25 purchases and 40 units from March 18 purchases.

Ending inventory = (200 * $62) + (40 * $60)

= $12,400 + $2,400

= $14,800

(b)

Under the LIFO method of inventory valuation, units sold consists of the units from recent purchases. Ending inventory consists of the units from earliest purchases and the beginning inventory.

Ending inventory in units = Units available for sale - Units sold

= 820 - 580

= 240

Ending inventory of 240 units consists of 100 units from beginning inventory and 140 units from March 5 purchases.

Ending inventory = (100*$50) + (140*$55)

= $5,000 + $7,700

= $12,700

(c)

Weighted average cost per unit = Cost of units available for sale / Number of units available for sale

= [(100*$50) + (400*$55) + (120*$60) + (200*$62)] / 820

= ($5,000 + $22,000 + $7,200 + $12,400) / 820

= $56.83

Ending inventory in units = Units available for sale - Units sold

= 820 - 580

= 240

Ending inventory = 240 units * $56.83 per unit

= $13,639.2

(d)

Ending inventory = (20*$50) + (60*$55) + (80*$60) + (80*$62)

= $1,000 + $3,300 + $4,800 + $4,960

= $14,060