Question

During June, the following changes in inventory item 27 took place:

            June   1     Balance                         1,400 units @ £24

                    14     Purchased                        900 units @ £36

                    24     Purchased                        700 units @ £30

                      8     Sold                                 400 units @ £50

                    10     Sold                              1,000 units @ £40

                    29     Sold                                 500 units @ £44

Perpetual inventories are maintained in units only.

Instructions

What is the cost of the ending inventory for item 27 under the following methods? (Show calculations.)

(a)   FIFO.

(b)   Average Cost.

Answer 1

Ans;

1. Cost of Ending inventory as per FIFO

	Opening Inventory /Purchase		Sales			Ending Inventory
Date	Description	Unit	Price	Amount	Unit	Price	Amount	Unit	Price	Amount
1st June	Opening balance	1400	24	33600				1400	24	33600
8th June	Sales				400	50	20000	1400	24	33600
10thJune	Sales				1000	40	40000	0	0	0
14th June	Purchase	900	36	32400				900	36	32400
24th June	Purchase	700	30	21000				900	36	32400
								700	30	21000
29th June	Sales				500	44	22000	400	36	14400
								700	30	21000

Ending inventory as per FIFO is= (400 units @ 36) + (700 unites @ 30) for a total value of 35400

2. Ending Inventory as per Average Cost:

	Opening Inventory /Purchase
Date	Description	Unit	Price	Amount
1st June	Opening balance	1400	24	33600
14th June	Purchase	900	36	32400
24th June	Purchase	700	30	21000
	Total	3000		87000

Average cost per unit is calculated by dividing the total value of the inventory / Total units

Average cost per unit = 87000 / 3000 = 29

Ending Inventory= Opening stock + purchase quantity - sales quantity

= (1400+900+700) - (400+1000+500) = 1100 units

Valuation as per Average cost for the ending inventory = 1100 x 29 = 31900