Question

The following data pertains to Efficient Market Investment software packages in the inventory of the Investment Software division of Efficient Market Investment Outlets:  

Inventory, January 1	180	units at $109
Purchases:
May 10	120	units at $107
August 18	190	units at $106
October 1	180	units at $107
Inventory, December 31	187	units

Answer each of the questions:

1. 1(a). Determine the cost of the inventory on December 31 and the cost of goods sold for the year ending on that date under the FIFO method.

2. 1(b). Determine the cost of the inventory on December 31 and the cost of goods sold for the year ending on that date under the LIFO method.

3. 1(c). Determine the unit cost, cost of the inventory on December 31 and the cost of goods sold for the year ending on that date under the average cost method.

4. 2. Assume that the replacement cost of each unit on December 31 is $107.25. Using the lower of cost or market rule, find the inventory amount under each of the methods given in 1.

Analyze:
What is the difference between the cost and market value of the inventory using the LIFO method?

Complete this question by entering your answers in the tabs below.

• Req 1A
• Req 1B
• Req 1C
• Req 2
• Analyze

Determine the cost of the inventory on December 31 and the cost of goods sold for the year ending on that date under the FIFO method.

	FIFO Cost of Goods Available for Sale Cost of Goods Sold Ending Inventory Number of units Unit cost Total cost Number of units Unit cost Total cost Number of units Unit cost Total cost Beginning Inventory, January 1 Purchases: May-10 Aug-18 Oct-01 Total

Answer 1

1(a)

FIFO	Cost of Goods Available for Sale			Cost of Goods Sold			Ending Inventory
	Number of Units	Unit cost	Total cost	Number of Units	Unit cost	Total cost	Number of Units	Unit cost	Total cost
Beginning Inventory, January 1	180	109	19620	180	109	19620
Purchases:
May 10	120	107	12840	120	107	12840
Aug 18	190	106	20140	183	106	19398	7	106	742
Oct 01	180	107	19260				180	107	19260
Total	670		71860	483		51858	187		20002

1(b)

LIFO	Cost of Goods Available for Sale			Cost of Goods Sold			Ending Inventory
	Number of Units	Unit cost	Total cost	Number of Units	Unit cost	Total cost	Number of Units	Unit cost	Total cost
Beginning Inventory, January 1	180	109	19620				180	109	19620
Purchases:
May 10	120	107	12840	113	107	12091	7	107	749
Aug 18	190	106	20140	190	106	20140
Oct 01	180	107	19260	180	107	19260
Total	670		71860	483		51491	187		20369

1(c) Average cost per unit = $71860/670 = $107.25

Cost of goods sold = 483 x $107.25 = $51802

Ending inventory = 187 x $107.25 = $20056

Unit cost is rounded off to 2 decimal places in absence of instructions regarding the same due to which there is a rounding off difference in the cost of goods sold and ending inventory. Kindly round off as required.

2.

	Total Cost	Total Replacement Cost	Ending Inventory
FIFO	20002	20056	20002
LIFO	20369	20056	20056
Average cost	20056	20056	20056

Analyze:

Difference between cost and market value using LIFO = $20369 - $20056 = $313