Question

The accounting records of Metlock Electronics show the following data.

Beginning inventory 2,700 units at $5

Purchases 7,000 units at $7

Sales 8,100 units at $10

1a. Determine cost of goods sold during the period under a periodic inventory system using the FIFO method.

1b. Determine cost of goods sold during the period under a periodic inventory system using the LIFO method.

1c. Determine cost of goods sold during the period under a periodic inventory system using the average-cost method.

Answer 1

Answer :

i)Beginning inventory : 2700 units @ $5

(+) Purchases : 7000 units @$7

Goods available for sale : 9700 units

ii)SalesSales 8,100 units @$10

1)COGS under FIFO method :

FIFO is one of the method commonly used to estimate the value of inventory on hand at the end of an accounting period and the cost of goods sold during the period. This method assumes that inventory purchased or manufactured first is sold first and newer inventory remains unsold.

Therefore

COGS for 8,100 units is :

2,700 units × $ 5 + 5,400 units × $7

= $13,500 + $37,800

= $ 51,300

2)COGS under LIFO method :

The last in first out (LIFO) method is used to place an accounting value on inventory. The LIFO method operates under the assumption that the last item of inventory purchased is the first one sold and inventory which purchased first will remain in ending inventory.

Therefore

COGS for 8,100 units is :

7,000 units × $ 7 + 1,100 units × $5

= $49,000 + $5,500

= $ 54,500

3)Weighted average cost per unit under weighted average cost method

In accounting, the Weighted Average Cost (WAC) method of inventory valuation uses a weighted average to determine the amount that goes into COGS and inventory. The weighted average cost method divides the cost of goods available for sale by the number of units available for sale.

The formula for the weighted average cost method is as follows:

Weighted average cost per unit (WAC per unit ) = cost of goods availabe for sale ÷ units available for sale

WAC per unit = 2,700×$5 + 7,000×$7 ÷ 9,700

= $62,500 ÷ 9,700

= 6.44 per unit

COGS under average cost method for 8,100 units

= 8,100 × 6.44 per unit

= $ 52,164.