Question

Sekhon company had a beginning inventory on January 1 of 200 units of product 4-18-15 at cost of $20 per unit. During the year, the following purchases were made.

Mar. 15 500 units at $21, July 20 313 units at $22 Sept. 4 413 units at $27. Dec. 2. 125 units at $31

1250 units were sold. Sekhon Company uses a periodic inventory system.

1. Determine the cost of good available for sale.

2. Calculate average cost per unit.

3. Determine (1) the ending inventory, and (2) the cost of goods sold under each of the assumed cost flow methods ( fifo, lifo, and average-cost).

4. Which cost flow method results in (1) the highest inventory amount for the balance sheet, and (2) the highest cost of goods sold for the income statement

Answer 1

Solution 1:

Cost of goods available for sale
Particulars	Units	Cost per unit	Total
Beginning Inventory	200	$20.00	$4,000
Purchases:
15-Mar	500	$21.00	$10,500
20-Jul	313	$22.00	$6,886
4-Sep	413	$27.00	$11,151
2-Dec	125	$31.00	$3,875
Total Purchases	1351		$32,412
Goods available for Sale	1551		$36,412

Solution 2:

Average cost per unit = $36,412 / 1551 = $23.48 per unit

Solution 3:

FIFO (Periodic)
Particulars	Units	Cost per unit	Total
Beginning Inventory	200	$20.00	$4,000.00
Purchases:
15-Mar	500	$21.00	$10,500.00
20-Jul	313	$22.00	$6,886.00
4-Sep	413	$27.00	$11,151.00
2-Dec	125	$31.00	$3,875.00
Total Purchases	1351		$32,412.00
Goods available for Sale	1551		$36,412.00
Cost of goods sold:
Units from beginning inventory	200	$20.00	$4,000.00
Units from march 15 purchase	500	$21.00	$10,500.00
Units from Jul 20 purchase	313	$22.00	$6,886.00
Units from Sep 4 purchase	237	$27.00	$6,399.00
Units from Dec 2 purchase	0	$31.00	$0.00
Total cost of goods sold	1250		$27,785.00
Ending Inventory	301		$8,627.00

LIFO (Periodic)
Particulars	Units	Cost per unit	Total
Beginning Inventory	200	$20.00	$4,000.00
Purchases:
15-Mar	500	$21.00	$10,500.00
20-Jul	313	$22.00	$6,886.00
4-Sep	413	$27.00	$11,151.00
2-Dec	125	$31.00	$3,875.00
Total Purchases	1351		$32,412.00
Goods available for Sale	1551		$36,412.00
Cost of goods sold:
Units from beginning inventory	0	$20.00	$0.00
Units from march 15 purchase	399	$21.00	$8,379.00
Units from Jul 20 purchase	313	$22.00	$6,886.00
Units from Sep 4 purchase	413	$27.00	$11,151.00
Units from Dec 2 purchase	125	$31.00	$3,875.00
Total cost of goods sold	1250		$30,291.00
Ending Inventory	301		$6,121.00

Average Cost (Periodic)
Particulars	Units	Cost per unit	Total
Beginning Inventory	200	$20.00	$4,000
Purchases:
15-Mar	500	$21.00	$10,500
20-Jul	313	$22.00	$6,886
4-Sep	413	$27.00	$11,151
2-Dec	125	$31.00	$3,875
Total Purchases	1351		$32,412
Goods available for Sale	1551	$23.48	$36,412
Cost of goods sold	1250	$23.48	$29,346
Ending Inventory	301		$7,066

Solution 4:

FIFO method results in the highest inventory amount for the balance sheet.

LIFO method results in the highest cost of goods sold for the income statement