Question

during january, tedesco company sold 183 units of product k. It's beginning inventory and purchases during the month were as following: january. 1- beginng inventory 100 units @ $41, january 5 -purchases 100 units @ $43, january 10 -purchases 100 units @ $38, january 15- purchases 100 units @ $50, january 20- purchases 100 units @ $48. Using the periodic inventory system compute the ending inventory and the cost of goods sold using the methods: a) average cost, b) FIFO, c) LIFO. SHOW ALL WORK

Answer 1

Purchase value of all inventory purchased = (100 units*$43)+(100 units*$38)+(100 units*$50)+(100 units*$48)

= $4,300+$3,800+$5,000+$4,800 = $17,900

Total units purchased = 100 units+100 units+100 units+100 units = 400 units

Opening Inventory = 100 units*$41 = $4,100

a) Average cost = (Opening Inventory+Purchase value)/Total opening units and units purchased

Average cost = ($4,100+$17,900)/500 units = $22,000/500 units = $44 per unit

Ending inventory (in units) = Opening inventory+Purchased units-Units sold = 100+400-183 = 317 units

Ending inventory (in $) = 317 units*$44 per unit = $13,948

Cost of goods sold = Opening Inventory+Purchases-Ending Inventory

= $4,100+$17,900-$13,948 = $8,052

b) Under FIFO method the material purchased first will be sold first, hence in the ending inventory the material left will be the units last purchased (i.e. 317 units will include 17 units purchased on january 5 and all the units purchased on january 10, 15 and 20).

Ending Inventory = (17 units*$43)+(100 units*$38)+(100 units*$50)+(100 units*$48)

= $731+$3,800+$5,000+$4,800 = $14,331

Cost of goods sold = Opening Inventory+Purchases-Ending Inventory

= $4,100+$17,900-$14,331 = $7,669

c) Under LIFO method the material purchased last will be sold first, hence in the ending inventory the material left will be the units first purchased and opening inventory (i.e. 317 units will include 100 units from opening inventory, inventory purchased on january 5 and january 10 and 17 units purchased on january 15).

Ending Inventory = (100 units*$41)+(100 units*$43)+(100 units*$38)+(17 units*$50)

= $4,100+$4,300+$3,800+$850 = $13,050

Cost of goods sold = Opening Inventory+Purchases-Ending Inventory

= $4,100+$17,900-$13,050 = $8,950