Question

2. Calculate the value of a periodic inventory using the four cost methods:

          Assume the beginning inventory as of January 1 consisted of 500 units that were purchased for $8.25 each. During the month, three new purchases were made. The first purchase consisted of 700 units costing $8.50 each, the second purchase had 800 units costing $9.00 each, and the third purchase had 600 units costing $9.50 each.  

Units              Cost per Unit                      

Beg. inventory, January 1             500                 @ $8.25

First purchase                                  700                 @ $8.50

Second purchase                             800                 @ $9.00

Third purchase                                 600                 @ $9.50

Total                                               2,600              

At the end of the month, ending inventory shows 700 units.

Compute the following for each of the methods:

1. Cost of goods sold

2. The cost of ending inventory

a. Specific identification: Of the units sold, 300 were from the beginning inventory, 600 from the first purchase, 700 from the second purchase, and 300 from the third purchase.   (Show your work)

b. First-in, first-out (FIFO): (Show your work)

Cost of Ending Inventory	Number of Units x	Unit Cost      =	Total Cost

c. Weighted-average: (Show your work)

Cost of Goods Sold	Number of Units x	Unit Cost      =	Total Cost

Cost of Ending Inventory	Number of Units x	Unit Cost      =	Total Cost

d. Last-in, first-out (LIFO): (Show your work)

Cost of Ending Inventory	Number of Units x	Unit Cost      =	Total Cost

Answer 1

FIFO method states that goods purchased first are sold first
LIFO states that goods purchased later are sold first
Weighted average method uses average cost for the purpose of calculation
Specific Indetification method works on the basis of actual item sold
Under periodic method, all records are updated at the end of the period and not after each transaction.
Average cost = Total cost of goods available/Total Units available
=(500*8.25+700*8.5+800*9+600*9.5)/2600
8.84	per unit
Cost of Goods sold
Method	Units	Unit cost	Total Cost
Specific Identification	1900		16725
FIFO	1900	=500*8.25+700*8.5+700*9	16375
Weighted average	1900	8.84	16796
LIFO	1900	=(600*9.5+800*9+500*8.5)	17150
Ending Inventory
Method	Units	Unit cost	Total Cost
Specific Identification	1900		6250
FIFO	1900		6600
Weighted average	1900		6179
LIFO	1900		5825