Question

Spratley Ltd is a builders’ merchant. On 1 September the business had, as part of its inventories, 20 tonnes of sand at a cost of £18 per tonne and, therefore, at a total cost of £360. During the first week in September, the business bought the following amounts of sand:

	Tonnes	Cost per tonne £
2 September	48	20
4 September	15	24
6 September	10	25

On 7 September the business sold 60 tonnes of sand to a local builder.

Required:

Calculate the cost of goods sold and of the remaining inventories using the following costing methods:

1. first in, first out

2. last in, first out

3. weighted average cost.

Answer 1

FIFO METHOD
Date	Particulars	Receipts			Issues			Balance
		Units (Tonne)	Rate (£)	Amt. (£)	Units (Tonne)	Rate (£)	Amt. (£)	Units (Tonne)	Rate (£)	Amt. (£)
Sept 1	Opening Inventory	-	-	-	-	-	-	20	18	360
Sept 2	Purchased	48	20	960	-	-	-	20 48	18 20	360 960
Sept 4	Purchased	15	24	360	-	-	-	20 48 15	18 20 24	360 960 360
Sept 6	Purchased	10	25	250	-	-	-	20 48 15 10	18 20 24 25	360 960 360 250
Sept 7	Sales	-	-	-	20 40	18 20	360 800	8 15 10	20 24 25	160 360 250

Thus, the Cost of Goods sold = (20 tonnes x £18) + (40 tonnes x £20) = £1,160

And, Value of Closing Inventory = (8 tonnes x £20) + (15 tonnes x £24) + (10 tonnes x £25) = £770

LIFO METHOD
Date	Particulars	Receipts			Issues			Balance
		Units (Tonne)	Rate (£)	Amt. (£)	Units (Tonne)	Rate (£)	Amt. (£)	Units (Tonne)	Rate (£)	Amt. (£)
Sept 1	Opening Inventory	-	-	-	-	-	-	20	18	360
Sept 2	Purchased	48	20	960	-	-	-	20 48	18 20	360 960
Sept 4	Purchased	15	24	360	-	-	-	20 48 15	18 20 24	360 960 360
Sept 6	Purchased	10	25	250	-	-	-	20 48 15 10	18 20 24 25	360 960 360 250
Sept 7	Sales	-	-	-	10 15 35	25 24 20	250 360 700	20 13	18 20	360 260

Thus, the Cost of Goods sold = (10 tonnes x £25) + (15 tonnes x £24) + (35 tonnes x £20) = £1,310

And, Value of Closing Inventory = (20 tonnes x £18) + (13 tonnes x £20) = £620

WEIGHTED AVERAGE COST METHOD
Date	Particulars	Receipts			Issues			Balance
		Units (Tonne)	Rate (£)	Amt. (£)	Units (Tonne)	Rate (£)	Amt. (£)	Units (Tonne)	Rate (£)	Amt. (£)
Sept 1	Opening Inventory	-	-	-	-	-	-	20	18	360
Sept 2	Purchased	48	20	960	-	-	-	68	19.41	1,320
Sept 4	Purchased	15	24	360	-	-	-	83	20.24	1,680
Sept 6	Purchased	10	25	250	-	-	-	93	20.75	1,930
Sept 7	Sales	-	-	-	60	20.75	1,245	33	20.75	685

Note:

Weighted Average Cost of Sand as on Sept 2 = [(20 tonnes x £18) + (48 tonnes x £20)]/68 tonnes

= £19.41 per tonne

WAC of sand is calculated in a similar way for other days as well, that is, Sept 4 and Sept 6

Thus, the Cost of Goods sold = 60 tonnes x £20.75 = £1,245

And, Value of Closing Inventory = 33 tonnes x £20.75 = £685