Question

Periodic Inventory Using FIFO, LIFO, and Weighted Average Cost Methods

The units of an item available for sale during the year were as follows:

Jan. 1	Inventory	15	units at $36	$540
Aug. 7	Purchase	20	units at $37	740
Dec. 11	Purchase	15	units at $38	570
		50	units	$1,850

There are 19 units of the item in the physical inventory at December 31. The periodic inventory system is used. Determine the inventory cost using (a) the first-in, first-out (FIFO) method; (b) the last-in, first-out (LIFO) method; and (c) the weighted average cost method (round per unit cost to two decimal places and your final answer to the nearest whole dollar).

Answer 1

Under the First in first out (FIFO) method of inventory valuation, Cost of goods sold consists of the units from beginning inventory and earliest purchases. Ending inventory consists of the units from recent purchases.

Ending inventory of 19 units consists of 15 units from December 11 purchases and 4 units from August 7 purchases.

Ending inventory = (15*$38) + (4*$37)

= $570 + $148

= $718

Under the Last in first out (LIFO) method of inventory valuation, Cost of goods sold consists of the units from recent purchases. Ending inventory consists of the units from beginning inventory and earliest purchases.

Ending inventory of 19 units consists of 15 units from Beginning inventory and 4 units from August 7 purchases.

Ending inventory = (15*$36) + (4*$37)

= $540 + $148

= $688

Cost per unit under the Weighted average cost method = Cost of units available for sale / Number of units available for sale

= $1,850 / 50

= $37

Ending inventory = 19 units * $37

= $703

(a) $718

(b) $688

(c) $703