Question

Towing Company employs a periodic inventory system. At July 1, Towing Company had 7,100 units of inventory on hand, with each unit having a cost of $13.30. During July, Towing Company recorded the following purchases of inventory: July 11 3,900 units purchased at ?????? per unit July 19 2,800 units purchased at ?????? per unit July 22 6,700 units purchased at $16.30 per unit During July, Towing Company sold 10,100 units of inventory to its customers. Using FIFO, Towing Company calculated its ending inventory at July 31 to be equal to $155,660. Using LIFO, Towing Company calculated its ending inventory at July 31 to be equal to $143,600. Calculate the dollar amount of ending inventory shown on Towing Company's July 31 balance sheet using the weighted average method.

Answer 1

Solution:

Ending inventory units = Beginning Inventory + Purchases - Units Sold = 7100+(3900+2800+6700) - 10100 = 10,400 units

Ending Inventory (LIFO) = 7100 units from Beginning Inventory + (10400-7100) units from July 11 purchases

$143600 = (7100 *$13.30) + (3300* unit cost of July 11 purchases)

$143600 = $94430 + (3300* unit cost of July 11 purchases)

unit cost of July 11 purchases = ($143600 - $94430) / 3300

Unit cost of July 11 purchases = $14.90

Now,

Ending Inventory (FIFO) = 6700 units from 22 July Purchases + 2800 units from 19 July Purchases + (10400-6700-2800) units from July 11 purchases

$155660 = (6700* $16.30) + (2800*Unit cost of July 19 purchases) + (900*$14.90)

$155660 = $109210 + (2800*Unit cost of July 19 purchases) + $13410

Unit cost of July 19 purchases = ($155660 -$109210 -$13410) / 2800

Unit cost of July 19 purchases = $11.80 per unit

Computation of Average Cost per unit
Date	Event	Units	Units Costs	Total Costs
1-Jul	Beginning	7100	$13.30	$94,430.00
11-Jul	Purchases	3900	$14.90	$58,110.00
19-Jul	Purchases	2800	$11.80	$33,040.00
22-Jul	Purchases	6700	$16.30	$109,210.00
	Total	20500		$294,790.00
Average Cost = $294790/20500 =			14.38

Dollar amount of Ending inventory using Weighted Average method = Ending units* average cost

= 10400*$14.38 = $149,552