Question

In: Accounting

The units of an item available for sale during the year were as follows: Jan. 1...

The units of an item available for sale during the year were as follows:
Jan. 1 Inventory 50 units at $115
Feb. 17 Purchase 88 units at $140
July 21 Purchase 35 units at $128
Nov. 23 Purchase 15 units at $155
There are 75 units of the item in the physical inventory at December 31. The periodic inventory system is used. Determine the inventory cost by (a) the first-in, first-out method, (b) the last-in, first-out method, and (c) the average cost method.

Solutions

Expert Solution

Answer 1)

Value of ending inventory using FIFO method, periodic inventory system

Value of ending inventory

Under FIFO method using periodic inventory system, Value of ending inventory is calculated on the assumption that units of inventory which are first bought will be sold first and so on. Thus value of ending inventory will be from the units of inventory which are Latest bought and moving backwards.

Date

Type

Number of Units

Cost per unit

Total Cost

Feb'17

Purchase

25

$            140.00

$    3,500.00

July'21

Purchase

35

$            128.00

$    4,480.00

Nov'23

Purchase

15

$            155.00

$    2,325.00

Total

75

$ 10,305.00

Therefore value of ending inventory using FIFO method, periodic inventory system is $ 10,305.

Value of ending inventory using LIFO method, periodic inventory system

Value of ending inventory

Under LIFO method using periodic inventory system, Value of ending inventory is calculated on the assumption that units of inventory which are latest bought will be sold first and so on. Thus value of ending inventory will be from the units of inventory which are first bought and moving forwards.

Date

Type

Number of Units

Cost per unit

Total Cost

Jan'1

Beginning Inventory

50

$            115.00

$    5,750.00

Feb'17

Purchase

25

$            140.00

$    3,500.00

Total

75

$    9,250.00

Therefore value of ending inventory using LIFO method, periodic inventory system is $ 9,250.

Value of ending inventory using Weighted Average method, periodic inventory system

Under weighted average cost method using periodic inventory system, value of ending inventory and cost of goods sold is calculated on the basis of a weighted average cost. Such cost is calculated by dividing the aggregate cost of units in the beginning inventory and cost units purchased during the period by the aggregate number of units in the beginning inventory and units purchased during the period.

Date

Type

Number of Units

Cost per unit

Total Cost

Jan'1

Beginning Inventory

50

$            115.00

$    5,750.00

Feb'17

Purchase

88

$            140.00

$ 12,320.00

July'21

Purchase

35

$            128.00

$    4,480.00

Nov'23

Purchase

15

$            155.00

$    2,325.00

Total

188

$ 24,875.00

Weighted Average cost = $ 24,875/ 188 units

                                           = $ 132.3138 per unit (approximately)

Value of ending inventory = Number of in ending inventory X weighted average cost per unit

                                                = 75 units X $ 132.3138 per unit

                                                 = $ 9,923.54 or $ 9,924 (rounded off)

Therefore value of ending inventory under weighted average cost method is $ 9,924.


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