Question

The following is a record of Splish Company’s transactions for Boston Teapots for the month of May 2020.

May 1

Balance

496 units

@

$21.00

May 10

Sale

372 units

@

$37.00

12

Purchase

744 units

@

$27.00

20

Sale

670 units

@

$37.00

28

Purchase

496 units

@

$30.00

Assuming that perpetual inventories are not maintained and that a physical count at the end of the month shows 694 units on hand, what is the cost of the ending inventory using (1) FIFO and (2) LIFO?

Assuming that perpetual records are maintained and they tie into the general ledger, calculate the ending inventory using (1) FIFO and (2) LIFO.

Answer 1

Answer:

Here,the company is following periodic inventory method because the company has not accounted every sale it has made. In periodic inventory system,every company counts units of its ending inventory and computes cost of ending inventory and cost of goods sold for the period accordingly.

Periodic Inventory System

(1) FIFO

Cost of ending inventory:

In FIFO method the units in ending inventory are the most recent cost incurred by the company in purchase of inventory

So, the units in ending inventory (694 units) are of out of purchases it has made

Cost of ending inventory (694 units) = (496 units * $30) + (198 units * $27) = $14,880 + $5,346 = $20,226

(2) LIFO

Cost of ending inventory:

In LIFO method the units in ending inventory are the most earliest cost incurred by the company in purchase of inventory

So, the units in ending inventory (694 units) are of out of opening inventory

Cost of ending inventory (694 units) = (496 units * $21) + (198 units * $27) = $10,416 + $5,346 = $15,762

Perpetual Inventory System

(1) FIFO

Cost of ending inventory under FIFO = $5,346 + $14,880 = $20,226

(2) LIFO

Cost of ending inventory under LIFO = $2,604 + $1,998 + $14,880 = $19,482