Question

Paddington Gifts made purchases of a particular product in the current year as follows:

Jan.	1	Beginning inventory		200	units		@	$	5.60		=	$	1,120
Mar.	7	Purchased		460	units		@	$	5.20		=		2,392
July	28	Purchased		1,200	units		@	$	4.60		=		5,520
Oct.	3	Purchased		760	units		@	$	4.00		=		3,040
		Totals		2,620	units							$	12,072

Required:

1. The business uses a periodic inventory system. Ending inventory consists of 110 units. Calculate the costs to be assigned to the ending inventory and to goods sold under: (Round intermediate calculations and final answers to 2 decimal places for "Weighted average cost".)

2. Which method provides the lower profit?

Answer 1

		Paddington Gifts
		Opening Stock & Purchases
		Unit	Unit Cost	Total Cost
	Beginning Inventory	200	$                         5.60	$                     1,120.00
	07-Mar	460	$                         5.20	$                     2,392.00
	28-Jul	1200	$                         4.60	$                     5,520.00
	03-Oct	760	$                         4.00	$                     3,040.00
	31-Oct
		2620		$                   12,072.00
	Inventory	110
1)
	FIFO Ending Inventory
(a)		Units	Rate	Total cost
	03-Oct	110	$                         4.00	$                         440.00
	Total	110		$                         440.00
	FIFO -Cost of goods sold
	Cost of goods available for sales	$                           12,072.00
	Less: Ending Inventory	$                                -440.00
	Cost of goods sold	$                           11,632.00
(b)	LIFO Ending Inventory
		Units	Rate	Total cost
	Beginning Inventory	110	$                         5.60	$                         616.00
		110		$                         616.00
	LIFO-Cost of goods sold
	Cost of goods available for sales	$                           12,072.00
	Less: Ending Inventory	$                                -616.00
	Cost of goods sold	$                           11,456.00
(C )	Unit Price=	Total cost/Total Units
	Unit Price=	($12072/2620)
	Unit Price=	$                                      4.61
	Weighted Average Inventory
	Ending Inventory(Units)=(A)	110
	Price per unit=(B)	$                                      4.61
	Ending Inventory Price=(A)*(B)	$                                 506.84
	Cost of goods available for sales	$                           12,072.00
	Less: Ending Inventory	$                                 506.84
	Cost of goods sold	$                           11,565.16
2)		Cost of Ending Inventory	Cost of goods sold
	FIFO	$                                 440.00	$              11,632.00
	LIFO	$                                 616.00	$              11,456.00
	Weighted Average	$                                 506.84	$              11,565.16
	FIFO method gives lower Profit because cost of goods sold is higher as compared
	to other methods.