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	7	units at $48	$336
Aug. 7	Purchase	16	units at $50	800
Dec. 11	Purchase	13	units at $51	663
		36	units	$1,799

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).

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.

20 units in ending inventory consists of 13 units from Dec. 11 purchases and 7 units from Aug. 7 purchases

Ending inventory = (13 * $51) + (7 * $50)

= $663 + $350

= $1,013

(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.

20 units in ending inventory consists of 7 units from beginning inventory and 13 units from Aug. 7 purchases.

Ending inventory = (7 * $48) + (13 * $50)

= $336 + $650

= $986

(c) Weighted average cost per unit = Cost of units available for sale / Number of units available for sale

= $1,799 / 36

= $49.97

Ending inventory = 20 units * $49.97

= $999