Question

Periodic Inventory Using FIFO, LIFO, and Weighted Average Cost Methods

The units of an item available for sale during the year were as follows:

Jan. 1	Inventory	10	units at $36	$360
Aug. 7	Purchase	15	units at $38	570
Dec. 11	Purchase	15	units at $39	585
		40	units	$1,515

There are 18 units of the item in the physical inventory at December 31. The periodic inventory system is used. Determine the inventory cost using (a) the first-in, first-out (FIFO) method; (b) the last-in, first-out (LIFO) method; and (c) the weighted average cost method (round per unit cost to two decimal places and your final answer to the nearest whole dollar).

a.) First-in, first-out (FIFO) = b.) Last in, first-out (LIFO) = c.) Weighted average cost =

Answer 1

(a)

Under the First in first out (FIFO) method of inventory valuation, Cost of goods sold consists of the units from beginning inventory and earliest purchases. Ending inventory consists of the units from recent purchases.

Ending inventory of 18 units consists of 15 units from December 11 purchases and 3 units from August 7 purchases.

Ending inventory = (15*$39) + (3*$38)

= $585 + $114

= $699

(b)

Under the Last in first out (LIFO) method of inventory valuation, Cost of goods sold consists of the units from recent purchases. Ending inventory consists of the units from beginning inventory and earliest purchases.

Ending inventory of 18 units consists of 10 units from beginning inventory and 8 units from August 7 purchases.

Ending inventory = (10*$36) + (8*$38)

= $360 + $304

= $664

(c)

Under the Weighted average method of inventory valuation both Cost of goods sold and Ending inventory are valued at average unit cost.

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

= $1,515 / 40

= $37.88

Ending inventory = 18 units * $37.88

= $682