Question

SJH Company uses the periodic inventory method and had the following inventory information available:

                                                               Units              Unit Cost           Total Cost

1/1         Beginning Inventory                    100                    $4                $   400

1/20       Purchase                                     400                    $5                     2,000

7/25       Purchase                                     200                    $7                     1,400

10/20     Purchase                                  300                    $8                 2,400

                                                               1,000                                           $6,200

A physical count of inventory on December 31 revealed that there were 350 units on hand.

Instructions

Answer the following independent questions and show computations supporting your answers.

Q.  Assume that the company uses the FIFO method. The value of the ending inventory at December 31 is $__________.

Answer 1

Answer)

Calculation of value of ending inventory using FIFO method, Periodic Inventory system

Under FIFO method using periodic inventory system, value of ending inventory is calculated at the end of a certain period on the assumption that units of inventory which are first bought will be sold first and so on. Therefore, the ending inventory will be from the latest bought units and moving backwards.

In the given question the company had 350 units on hand on December 31. Out of these 350 units, 300 units will be from the purchases made on 20^th October at $ 8 per unit and balance 50 units will be from the purchases made on 25^th July at $ 7 per unit.

Value of ending inventory at December 31 = (300 Units X $ 8 per unit) + (50 units X $ 7 per unit)

                                                                               = $ 2,400 + $ 350

                                                                                = $ 2,750

Therefore, under FIFO method using periodic inventory system the value of 350 units in ending inventory on December 31 is $ 2,750.