Question

Zippy Shoe Co. uses a periodic inventory system. Zippy purchased 405 pairs of shoes at $65 each in June, 965 pairs in August at $67 each, and 610 pairs in December at $70 each. Zippy sold 1,875 pairs of shoes during the year.

Required:

Calculate the company's ending inventory and cost of goods sold using the each of following inventory costing methods.

1. FIFO
2. LIFO
3. Weighted Average

Answer 1

Number of units available for sale = 405 + 965 + 610 = 1,980

Cost of units available for sale = (405 * $65) + (965 * $67) + (610 * $70)

= $26,325 + $64,655 + $42,700

= $133,680

Units in ending inventory = Number of units available for sale - Units sold

= 1,980 - 1,875

= 105

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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.

105 units in ending inventory consists of December purchases.

Ending inventory = 105 * $70 = $7,350

Cost of goods sold = Cost of units available for sale - Ending inventory

= $133,680 - $7,350

= $126,330

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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.

105 units in ending inventory consists of June purchases.

Ending inventory = 105 * $65 = $6,825

Cost of goods sold = Cost of units available for sale - Ending inventory

= $133,680 - $6,825

= $126,855

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c. Under the Weighted average method of inventory valuation both Cost of goods sold and Ending inventory are valued at average unit cost.

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

= $133,680 / 1,980

= $67.52 (rounded to 2 decimal places)

Ending inventory = 105 units * $67.52

= $7,090 (rounded to nearest dollar amount)

Cost of goods sold = 1,875 units * $67.52

= $126,600