Question

On the basis of the following data, determine the value of the inventory at the lower of cost or market. Assemble the data in the form illustrated in Exhibit 9.

Inventory Item	Inventory Quantity	Cost per Unit	Market Value per Unit (Net Realizable Value)
Birch	18	$69	$82
Cypress	34	173	172
Mountain Ash	36	217	225
Spruce	21	260	237
Willow	22	281	265

Inventory at the Lower of Cost or Market
Inventory Item	Total Cost	Total Market	Total Lower of C or M
Birch	$	$	$
Cypress
Mountain Ash
Spruce
Willow
Total	$	$	$

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	40 units @ $100
Mar. 10	Purchase	70 units @ $108
Aug. 30	Purchase	20 units @ $112
Dec. 12	Purchase	70 units @ $116

There are 80 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

Question 1:

Inventory item	Inventory Quantity	Cost per unit	Market value per unit	Total cost	Total market value	Lower of C or M
Birch	18	$69	82	$1,242	$1,476	$1,242
Cypress	34	$173	172	$5,882	$5,848	$5,848
Mountain Ash	36	$217	225	$7,812	$8,100	$7,812
Spruce	21	$260	237	$5,460	$4,977	$4,977
Willow	22	$281	265	$6,182	$5,830	$5,830
Total	131			$26,578	$26,231	$25,709

Question 2:

Closing inventory = Opening inventory + Units purchased - Units sold
=> Closing inventory = 12 units + 128 units - 105 units
=> Closing inventory = 35 units
FIFO
FIFO - This method assumes the inventory purchased first is sold first
If FIFO method is used, the 105 units sold would mean 12 units of opening inventory, 45 units of purchases made on Sept 12 and 48 units of purchases made on Sept 19 being sold
Therefore, the cost of goods sold shall be follows:
= (12 units @ $110) + (45 units @ $113) + (48 units @ $114)
=> $11,877
Thus, under the FIFO method closing inventory of 35 units would mean 23 units of purchases made on Sept 26 and 12 units of purchases made on Sept 19.
Hence, closing inventory is valued at $4,013 (23 units @ $115 + 12 units @ $114)
LIFO
LIFO - This method assumes the inventory purchased last is sold first
If LIFO method is used, the 105 units sold would mean 23 units of purchase made on Sept 26, 60 units of purchases made on Sept 19 and 22 units of purchases made on Sept 12 being sold.
Therefore, the cost of goods sold shall be follows:
(23 units @ $115) + (60 units @ $114) + (22 units @ $113)
=> $11,971
Thus, under the LIFO method closing inventory of 35 units would mean 12 units of opening inventory and 23 units of purchases made on Sept 12.
Hence, closing inventory is valued at $3,919 (12 units @ $110 + 23 units @ $113)
Average Cost
This method assumes that the cost of inventory is based on the average cost of goods available for sale during the period.
Average cost of inventory for the given question is calculated below:
		Units	Price	Cost
Beginning inventory	01-Sep	12	$110	$1,320
Purchases	12-Sep	45	$113	$5,085
Purchases	19-Sep	60	$114	$6,840
Purchases	26-Sep	23	$115	$2,645
Total		140		$15,890
Average cost of inventory = $15,890 / 140 units = $113.50 per unit
Thus, under the Average cost method cost of goods sold = 105 units @ $113.5 per unit = $11,918
Closing inventory will be valued at $3,973 (35 units @ $113.5 per unit)
(a) Ending inventory at Sept 30:
FIFO	LIFO	Average Cost
$4,013	$3,919	$3,973
(b) Cost of goods sold at Sept 30:
FIFO	LIFO	Average Cost
$11,877	$11,971	$11,918
Units sold = Opening inventory + Units purchased - Closing inventory
=> Units sold = 40 units + 70 units + 20 units + 70 units - 80 units
=> Units sold = 120 units
FIFO
FIFO - This method assumes the inventory purchased first is sold first
If FIFO method is used, the 120 units sold would mean 40 units of opening inventory, 70 units of purchases made on March 10 and 10 units of purchases made on Aug 30 being sold
Therefore, the cost of goods sold shall be follows:
= (40 units @ $100) + (70 units @ $108) + (10 units @ $112)
=> $12,680
Thus, under the FIFO method closing inventory of 80 units would mean 70 units of purchases made on Dec 12 and 10 units of purchases made on Aug 30.
Hence, closing inventory is valued at $9,240 (70 units @ $116 + 10 units @ $112)
LIFO
LIFO - This method assumes the inventory purchased last is sold first
If LIFO method is used, the 120 units sold would mean 70 units of purchase made on Dec 12, 20 units of purchases made on Aug 30 and 30 units of purchases made on Mar 10 being sold.
Therefore, the cost of goods sold shall be follows:
(70 units @ $116) + (20 units @ $112) + (30 units @ $108)
=> $13,600
Thus, under the LIFO method closing inventory of 80 units would mean 40 units of opening inventory and 40 units of purchases made on Mar 10.
Hence, closing inventory is valued at $8,320 (40 units @ $100 + 40 units @ $108)
Average Cost
This method assumes that the cost of inventory is based on the average cost of goods available for sale during the period.
Average cost of inventory for the given question is calculated below:
		Units	Price	Cost
Beginning inventory	01-Jan	40	$100	$4,000
Purchases	10-Mar	70	$108	$7,560
Purchases	30-Aug	20	$112	$2,240
Purchases	12-Dec	70	$116	$8,120
Total		200		$21,920
Average cost of inventory = $21,920 / 200 units = $109.6 per unit
Thus, under the Average cost method cost of goods sold = 120 units @ $109.6 per unit = $13,152
Closing inventory will be valued at $8,768 (80 units @ $109.6 per unit)
Answer:
	Merchandise inventory	Merchandise sold
FIFO	$9,240	$12,680
LIFO	$8,320	$13,600
Average Cost	$8,768	$13,152