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	5	units at $3,600	$18,000
Aug. 7	Purchase	19	units at $3,800	72,200
Dec. 11	Purchase	15	units at $3,900	58,500
		39	units	$148,700

There are 20 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)	$fill in the blank 1
b.	Last-in, first-out (LIFO)	$fill in the blank 2
c.	Weighted average cost	$fill in the blank 3

1. Inventory Turnover and Days' Sales in Inventory

   Financial statement data for years ending December 31 for Amsterdam Company follow:

   	20Y4				20Y3
   Cost of merchandise sold	$3,598,900				$3,015,630
   Inventories:
   Beginning of year	593,000				589,600
   End of year	648,000				593,000

   a. Determine the inventory turnover for 20Y4 and 20Y3. Round to one decimal place.

   	Inventory Turnover
   20Y4	fill in the blank 1
   20Y3	fill in the blank 2

   b. Determine the days' sales in inventory for 20Y4 and 20Y3. Assume 365 days a year. Round interim calculations and final answers to one decimal place.

   	Days' Sales in Inventory
   20Y4	fill in the blank 3 days
   20Y3	fill in the blank 4 days

   c. Does the change in the inventory turnover and the days' sales in inventory from 20Y3 to 20Y4 indicate a favorable or an unfavorable trend?
   

Check My Work

Answer 1

	Inventory Cost
a)First-in, first-out(FIFO)	$77,500
b)Last-in, first-out(LIFO)	$75,000
c)Weighted average cost	$76,256

Workings

Units sold = Beginning inventory + Purchases – Ending inventory

                   = 5+19+15-20

                   =19 units

a)First- in, first- out(FIFO)

Under FIFO method, goods which are purchased first are sold first.

	Goods available for sale	Cost of goods sold	Ending inventory
	Unit	Cost per unit	Total	Unit	Cost per unit	Total	Units	Cost per unit	Total
Beginning Inventory	5	$3,600	$18,000	5	$3,600	$18,000
Purchases:
Jan 7	19	$3,800	$72,200	14	$3,800	$53,200	5	$3,800	$19,000
Dec11	15	$3,900	$58,500				15	$3,900	$58,500
Total	39		$148,700	19		$71,200	20		$77,500

b)Last-in, first- out(LIFO)

Under LIFO method, goods which are purchased last are sold first.

	Goods available for sale	Cost of goods sold	Ending inventory
	Unit	Cost per unit	Total	Unit	Cost per unit	Total	Units	Cost per unit	Total
Beginning Inventory	5	$3,600	$18,000				5	$3,600	$18,000
Purchases:
Jan 7	19	$3,800	$72,200	4	$3,800	$15,200	15	$3,800	$57,000
Dec11	15	$3,900	$58,500	15	$3,900	$58,500
Total	39		$148,700	19		$73,700	20		$75,000

c)Weighted Average Cost

	Goods available for sale	Cost of goods sold	Ending inventory
	Unit	Cost per unit	Total	Unit	Cost per unit	Total	Units	Cost per unit	Total
Beginning Inventory	5	$3,600	$18,000
Purchases:
Jan 7	19	$3,800	$72,200
Dec11	15	$3,900	$58,500
Total	39		$148,700	19	$3812.82	$72,444	20	$3812.82	$76,256

Weighted average cost per unit = Cost of goods available for sale/No of units available for sale

                                                          =$148,700/39

                                                         =$3,812.82 per unit

a)

	Inventory Turnover
20Y4	5.8
20Y3	5.1

Workings

	20Y4	20Y3
a)Beginning inventory	$593,000	$589,600
b)Ending inventory	$648,000	$593,000
c)Average inventory (a+b)/2	$620,500	$591,300
d)Cost of merchandise sold	$3,598,900	$3,015,630
e)Inventory Turnover(times) (d/c)	5.8	5.1

b)

	Days’ Sales in Inventory
20Y4	62.9
20Y3	71.6

Workings

	20Y4	20Y3
a)Inventory Turnover	5.8	5.1
b)Days Sales in Inventory (365/a)	62.9	71.6

c) Favorable trend