Question

In September, Dimicks Ltd sold 10,000 books for $200,000. Information regarding its opening inventory and purchases for the period follows:

		Units	Cost per unit $
Sept. 1	Opening inventory	4,500	8
9	Purchase	3,000	10
17	Purchase	7,500	9
25	Purchase	2,000	10
		17,000

Required:

Assume the firm uses the periodic inventory system. Determine the ending inventory amounts at 30 September using the following methods (show all workings):

(i)     Average Cost

(ii)    First in First Out (FIFO)

(iii) Last in First Out (LIFO)

Answer 1

Total units = 1,7000 units

Units sold = 1,7000 - 7,000 = 10,000 units

Ending inventory = 17,000 - 10,000 = 7,000 units

i Average cost

Average cost = total cost / total number of units

Total cost = (4,500 × 8) + (3,000 × 10) + (7,500 × 9) + (2,000 × 10 = $153,500

Total number of units = 17,000 units

Average cost = 153,500 / 17,000 = 9.029

Cost of goods sold = 10,000 × 9.029 = $90,290

Ending inventory = 7,000 × 9.029 = $63,203

Ending inventory cost under average cost method is 9.029

ii FIRST IN FIRST OUT (FIFO)

Cost of goods sold = (4,500 × 8) + (3,000 × 10) × (2,500 × 9) = $88,500

Ending inventory = (5,000 × 9) + (2,000 × 10) = $65000

Ending inventory under FIFO method is $65,000

iii LAST IN FIRST OUT (LIFO)

Cost of goods sold = (2,000 × 10) + (7,500 × 9) + (500 × 10) = $92,500

Ending inventory = (2,500 × 10) + (4,500 × 8) = $61,000

Ending inventory under LIFO method is $61,000

The above are the detailed calculations of ending inventory under average cost, FIFO and LIFO methods.

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