In: Accounting
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.
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.