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	50 units @ $124
Mar. 10	Purchase	60 units @ $132
Aug. 30	Purchase	20 units @ $138
Dec. 12	Purchase	70 units @ $142

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

FIFO METHOD

(1). Cost of ending inventory –

If FIFO method is used, the units remaining in the inventory represent the most recent costs incurred to purchase the inventory. The cost of 80 units on 31 December would, therefore, be computed as follows:

most recent cos,december 12

70 units @ $142 =    $9940

next most recent cost,august 30

10 units @ $138= $1380

total cost of 80 units in ventory on december 31= $11320.

(2). Cost of goods sold –

Cost of goods sold = Cost of units in beginning inventory + Cost of units purchased during the period – Cost of units in ending inventory

cost of units on january 1=50 units @ $124= $6200

add:cost of units purchased during the year

60 units @ $132= $7920

20 units @ $138 = $2760

70 units @ $142= $9940.

total cost of units available for sale $26820.

less:cost of units in ending inventory $11320.

total cost of 120 units sold during the year $15500.

LIFO METHOD

1). Cost of ending inventory :Since the company is using LIFO periodic system, the 80 units in ending inventory would be costed using the earliest purchasing costs. The computations are given below:

PARTICULARS		AMOUNT($)
Jan-01	50 units @ $124	6200
Mar-10	30 units @ $132	3960
TOTAL COST	80 UNITS	10160

2) Cost of goods sold-Can be calculate as follows

Cost of goods sold = Cost of units in beginning inventory + Cost of units purchased during the period – Cost of units in ending inventory

PARTICULARS		AMOUNT($)
january 01 beginning inventory	50 units @ $124	6200
add:purchases
Mar-10	60 units x $132	7920
Aug-30	20 units x $138	2760
Dec-12	70 units x $142	9940
TOTAL COST OF UNITS AVAILABLE FOR SALE		26820
LESS:COST OF UNITS IN ENDING INVENTORY		10160
COST OF 120 UNITS SOLD DURING THE YEAR		16660

3)WEIGHTED AVERAGE COST METHOD:-

a. Computation of inventory on december 31 ( i, e., ending inventory) under average cost method:

PARTICULARS		AMOUNT($)
january 01 beginning inventory	50 units @ $124	6200
add:purchases
Mar-10	60 units x $132	7920
Aug-30	20 units x $138	2760
Dec-12	70 units x $142	9940
TOTAL	200 UNITS	26820
AVERAGE COST PER UNIT	26820/200	134.1

ending inventory=80 units x $134.10=$10728

b. Computation of cost of goods sold (COGS) under average cost method:

120 units x $134.10=$16092