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 @ $98
Mar. 10	Purchase	50 units @ $108
Aug. 30	Purchase	20 units @ $112
Dec. 12	Purchase	80 units @ $116

There are 60 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

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.

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.

Cost of units available for sale = (50*$98) + (50*$108) + (20*$112) + (80*$116)

= $4,900 + $5,400 + $2,240 + $9,280

= $21,820

Number of units available for sale = 50 + 50 + 20 + 80 = 200

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

= $21,820 / 200

= $109.1

Merchandise sold = Cost of units available for sale - Ending inventory

Inventory Method	Merchandise Inventory	Merchandise sold
First-in, first-out (FIFO)	$6,960 (60*$116)	$14,860 ($21,820-$6,960)
Last-in, first-out (LIFO)	$5,980 [(50*$98)+(10*$108)]	$15,840 ($21,820-$5,980)
Weighted average cost	$6,546 (60*$109.1)	$15,274 ($21,820-$6,546)