Question

We report the following current-year purchases and sales for our only product:

Date	Activity	Starting	Purchases	Sales
January 1	Beginning Inventory	200 Units @ $10
January 10	Sales			150 Units
March 14	Purchase		350 Units @ $15
March 15	Sales			300 Units
July 30	Purchase		450 Units @ $20
October 5	Sales			430 Units
October 26	Purchase		100 Units @ $25

Determine the costs assigned to ending inventory using (1) FIFO, (2) LIFO, and (3) Weighted Average.

1. FIFO

Date	Beg. Inventory	Purchase	Sale	End. Inventory
January 1
January 10
March 14
March 15
July 30
October 5
October 26

2. LIFO

Date	Beg. Inventory	Purchase	Sale	End. Inventory
January 1
January 10
March 14
March 15
July 30
October 5
October 26

3. Weighted Average

Date	Beg. Inventory	Purchase	Sale	End. Inventory
January 1
January 10
March 14
March 15
July 30
October 5
October 26

4. Using the same chart information, if Ending Inventory consists of 45 unit from the March 14 purchase, 75 units from the July 30 purchase, and all 100 units from the October 26 purchase, what would be the costs associated to the ending inventory.

5. Ames Trading Co. has the following products in its ending inventory. Compute lower of cost or market for inventory applied separately to each product.

Product	Quantity	Cost per Unit	Market per Unit
Mountain Bikes	11	$600	$550
Skateboards	13	$350	$425
Gliders	26	$800	$700

For each product, which value (cost value or market value) would you show as inventory cost?

Answer 1

Solution

Requirement 1

(1) Under FIFO method,

Date	Beginning Inventory	Purchase	Sales	Ending Inventory
	Unit	Cost per unit ($)	Value ($)	Unit	Cost per unit ($)	Value ($)	Unit	Cost per unit ($)	Value ($)	Unit	Cost per unit ($)	Value ($)
Jan 01	200	10	2000							200	10	2000
Jan 10	200	10	2000				150	10	1500	50	10	500
Mar 14	50	10	500	350	15	5250				50 350 400	10 15	5750
Mar 15	50 350 400	10 15	5750				50 250 300	10 15	4500	100	15	1500
Jul 30	100	15	1500	450	20	9000				100 450 550	15 20	10500
Oct 05	100 450 550	15 20	10500				100 330 430	15 20	8100	120	20	2400
Oct 26	120	20	2400	100	25	2500				120 100 220	20 25	4900

Therefore, under FIFO method, Cost of Inventory (for 220 units) will be $4,900

(2) Under LIFO Method,

Date	Beginning Inventory	Purchase	Sales	Ending Inventory
	Unit	Cost per unit ($)	Value ($)	Unit	Cost per unit ($)	Value ($)	Unit	Cost per unit ($)	Value ($)	Unit	Cost per unit ($)	Value ($)
Jan 01	200	10	2000							200	10	2000
Jan 10	200	10	2000				150	10	1500	50	10	500
Mar 14	50	10	500	350	15	5250				50 350 400	10 15	5750
Mar 15	50 350 400	10 15	5750				300	15	4500	50 50 100	10 15	1250
Jul 30	50 50 100	10 15	1250	450	20	9000				50 50 450 550	10 15 20	10250
Oct 05	50 50 450 550	10 15 20	10250				430	20	8600	50 50 20 120	10 15 20	1650
Oct 26	50 50 20 120	10 15 20	1650	100	25	2500				50 50 20 100 220	10 15 20 25	4150

Therefore, under FIFO method, Cost of Inventory (for 220 units) will be $4,150

(3) Under Weighted Average Method,

Date	Particulars	Units	Rate ($)	Cost ($)
January 1	Beginning Inventory	200	10	2000
January 10	Sales	-150	n/a	n/a
March 14	Purchase	+350	15	5250
March 15	Sales	-300	n/a	n/a
July 30	Purchase	+450	20	9000
October 05	Sales	-430	n/a	n/a
October 26	Purchase	+100	25	2500
	Ending Inventory	220	-	-

Actual total cost of all inventory is $18,750 ($2,000 beginning inventory + $16,750 purchased) and total units of inventory is 1,100 (200 beginning inventory + 900 purchased).

The weighted average cost per unit therefore is $17.05 (Approx.) ($18,750 ÷ 1100 units)

Ending inventory valuation is $3,751 (220 units × $17.05 weighted average cost).

(4) Under Specific Identification Method, Cost of Ending Inventory will be,

45 units from March 14 ($15 per unit) = $15 x 45 = $675

75 units from July 30 ($20 per unit) = $20 x 75 = $1500

100 units from October 26 ($25 per unit) = $25 x 100 = $2500

Therefore, Cost of Ending Inventory (220 units) = $4,675

Requirement 2

Product	Quantity	Cost per unit ($)	Market price per unit ($)	Lower of Cost or Market Price ($)	Total Price ($)
Mountain Bikes	11	600	550	550	6050
Skateboards	13	350	425	350	4550
Gliders	26	800	700	700	18200
Total	50				28800