Question

Glee Distribution markets CDs of the performing artist Unique. At the beginning of October, Glee had in beginning inventory 4,800 of Unique’s CDs with a unit cost of $7. During October, Glee made the following purchases of Unique’s CDs.

October 3 - 6,000 @ $8

October 9- 8,500 @ $9

October 19-7,000 @ $10

October 25-9500 @ $11

Determine the cost of goods available for sale.

Determine (1) the ending inventory and (2) the cost of goods sold under each of the assumed cost flow methods (FIFO, LIFO, and average-cost).

During October, 26,000 units were sold. Glee uses a periodic inventory system.

Answer 1

Date	Units	Unit Cost	Total cost
Oct-01	4800	$7	$33,600
Oct-03	6000	$8	$48,000
Oct-09	8,500	$9	$76,500
Oct-19	7,000	$10	$70,000
Oct-25	9,500	$11	$104,500
	35,800		$332,600

1. FIFO Method

Number of units available for sale = 35,800

Number of units sold = 26,000

Ending inventory units = Number of units available for sale- Number of units sold

= 35,800-26,000

= 9,800

FIFO Method: Calculation of Cost of ending inventory.

Date	Units	Unit Cost	Total cost
Oct-19	300	$10	$3,000
Oct-25	9,500	$11	$104,500
	9800		$107,500

Cost of ending inventory = $107,500

Cost of goods sold = Cost of goods available for sale - Cost of ending inventory

= 332,600-107,500

= $225,100

2.

LIFO Method: Calculation of Cost of ending inventory.

Date	Units	Unit Cost	Total cost
Oct-01	4800	$7	$33,600
Oct-03	5,000	$8	$40,000
	9800		$73,600

Cost of ending inventory = $73,600

Cost of goods sold = Cost of goods available for sale - Cost of ending inventory

= 332,600-73,600

= $259,000

3.

Average Cost Method:

Average cost per unit = Total cost / Number of units available for sale

= 332,600/35,800

= $9.29

Cost of ending inventory = Ending inventory units x Average cost per unit

= 9,800 x 9.29

= $91,047

Cost of goods sold = Number of units sold x Average cost per unit

= 26,000 x 9.29

= $241,553