Question

Use the following to answer questions 20-22

Amy Co. has the following data related to an item of inventory: Inventory, May 1 40 units @ $100 Purchase, May 7 70 units @ $80 Purchase, May 16 170 units @ $60 Ending Inventory 10 units

20. The value assigned to ending inventory if Amy uses LIFO is

21. The value assigned to cost of goods sold if Amy uses FIFO is

22. The value assigned to ending inventory if Amy uses weighted average is (round)

Bond Company adopted the dollar-value LIFO inventory method on January 1, 2019. In applying the LIFO method, Bond uses internal cost indexes and the multiple-pools approach. Its inventory at that date was $300,000 and the relevant price index was 100. The following data were available for Inventory Pool No. 3 for the three years following the adoption of LIFO: Inventory at Current Date Current Prices Price Index December 31, 2019 $345,600 108 December 31, 2020 362,500 125 December 31, 2021 420,000 120

23. What is the cost of the ending inventory at December 31, 2019 under dollar-value LIFO?

24. What is the cost of the ending inventory at December 31, 2020 under dollar-value LIFO?

25. What is the cost of the ending inventory at December 31, 2021 under dollar-value LIFO?

Answer 1

Under Last In, First Out (LIFO) method the last costs inventoried are the first costs transferred to cost of goods sold. Ending inventory therefore, includes the oldest costs

Under First In, First Out (FIFO) method the first costs inventoried are the first costs transferred to cost of goods sold. Ending inventory includes the most recently incurred costs

Under Weighted average method, at the end of the period, the average cost of each item in the inventory would be weighted average of the costs of all item in the inventory. This method is particularly suitable for homogeneous products and a periodic inventory system

Cost of Goods sold = Total cost of goods available for sale - Ending Inventory

Total cost of goods available for sale = Beginning inventory + purchases during period

20. The value assigned to ending inventory if Amy uses LIFO is = $ 1,000

	LIFO Method				Ending	Inventory
Date	Description	Units	Cost/Unit	value	Units	Cost/Unit	value
May 1	Beginning Inventory	40	100	4,000	10	100	1,000
May 7	Purchase	70	80	5,600	-
May 16	Purchase	170	60	10,200	-
May 31	Total Goods available for sales	280		19,800	10		1,000
	Less : Ending Inventory	(10)		(1,000)
	Cost of Goods sold	270		18,800

21. The value assigned to cost of goods sold if Amy uses FIFO is = $ 19,200

	FIFO Method				Ending	Inventory
Date	Description	Units	Cost/Unit	value	Units	Cost/Unit	value
May 1	Beginning Inventory	40	100	4,000	-	-	-
May 7	Purchase	70	80	5,600	-
May 16	Purchase	170	60	10,200	10	60	600
May 31	Total Goods available for sales	280		19,800	10		600
	Less : Ending Inventory	(10)		(600)
	Cost of Goods sold	270		19,200

22. The value assigned to ending inventory if Amy uses weighted average is (round) = $ 707

The weighted average rate is determined by dividing the total cost of inventory available for sales by total units of inventory available for sales

	Weighted Average
Date	Description	Units	Cost/Unit	value
May 1	Beginning Inventory	40	100	4,000
May 7	Purchase	70	80	5,600
May 16	Purchase	170	60	10,200
May 31	Total Goods available for sales	280	70.71	19,800
	Less : Ending Inventory	(10)	70.71	(707)
	Cost of Goods sold	270		19,093

.

Dollar-value LIFO uses this approach with all inventory figures in dollar amounts, rather than in inventory units. When converting from LIFO inventory to dollar-value- LIFO, a price index will be used to adjust the inventory value

Price Index = Ending inventory at current year cost / Ending inventory at base year cost

Ending inventory at base year cost = Ending inventory at current year cost / Price Index

(A)	(B)	(A / B) *100
At current year cost	Price Index	At base year cost
300,000	100	300,000
345,600	108	320,000
362,500	125	290,000
420,000	120	350,000

Each year layer is difference between ending inventory and begining inventroy

Date	At base year cost	At current year cost	Dollor value LIFO
Jan 01, 2019	300,000	300,000	300,000
Year 1 layer	20,000	45,600	21,600
Dec 31, 2019	320,000	345,600	321,600
Year 2 layer	(30,000)	16,900	(37,500)
Dec 31, 2020	290,000	362,500	284,100
Year 3 layer	60,000	57,500	72,000
Dec 31, 2021	350,000	420,000	356,100

Dollar value Layer for year 1 is calculated as = Year 1 base year cost * 1.08 = 20,000 *1.08 = $ 21,600

Dollar value Layer for year 2 is calculated as = Year 2 base year cost * 1.25 = (30,000) *1.25 = $ (37,500)

Dollar value Layer for year 3 is calculated as = Year 3 base year cost * 1.20 = 60,000 *1.20 = $ 72,000

23. What is the cost of the ending inventory at December 31, 2019 under dollar-value LIFO = $ 321,600

24. What is the cost of the ending inventory at December 31, 2020 under dollar-value LIFO = $ 284,100

25. What is the cost of the ending inventory at December 31, 2021 under dollar-value LIFO = $ 356,100