Question

Periodic Inventory by Three Methods; Cost of Merchandise Sold

The units of an item available for sale during the year were as follows:

Jan. 1	Inventory	30 units @ $100
Mar. 10	Purchase	70 units @ $112
Aug. 30	Purchase	20 units @ $120
Dec. 12	Purchase	80 units @ $124

There are 60 units of the item in the physical inventory at December 31. The periodic inventory system is used.

Determine the inventory cost and the cost of merchandise sold by three methods. Round interim calculations to one decimal and final answers to the nearest whole dollar.

Cost of Merchandise Inventory and Cost of Merchandise Sold
Inventory Method	Merchandise Inventory	Merchandise Sold
First-in, first-out (FIFO)	$	$
Last-in, first-out (LIFO)
Weighted average cost

Answer 1

Working Note 1 : Units of Goods Sold = Beginning Inventory + Purchases - Ending Inventory

= 30 units + 70 units + 20 units + 80 units - 60 units = 140 units

Working Note 2 : Average cost per unit

= [Beginning Inventory ($) + Purchases($)] / [Beginning Inventory (units) + Purchases (units) ]

= [ (30 units * $100) + (70 units * $112) + (20 units * $120) + (80 units * $124)] / (30 units + 70 units + 20 units + 80 units)

= $23,160 / 200 units = $115.8

Answer :

Inventory Method	Merchandise Inventory	Merchandise Sold
First-in, first-out (FIFO)	(60 units * $124) = $7,440	[ (30 units * $100) + (70 units * $112) + (20 units * $120) + (20 units * $124)] = $15,720
Last-in, first-out (LIFO)	[ (30 units * $100) + (30 units * $112) ] = $6,360	[ (80 units * $124) + (20 units * $120) + (40 units * $112) ] = $16,800
Weighted average cost	(60 units * $115.8(Working Note 2)= $6,948	140 units * $115.8(Working Note 2) = $16,212