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Zippy Shoe Co. uses a periodic inventory system. Zippy purchased 440 pairs of shoes at $73...

Zippy Shoe Co. uses a periodic inventory system. Zippy purchased 440 pairs of shoes at $73 each in June, 960 pairs in August at $75 each, and 620 pairs in December at $78 each. Zippy sold 1,880 pairs of shoes during the year.


Required:

Calculate the company's ending inventory and cost of goods sold using the each of following inventory costing methods.

  1. FIFO
  2. LIFO
  3. Weighted Average

Solutions

Expert Solution

Number of units available for sale = 440 + 960 + 620

= 2,020

Units in ending inventory = Number of units available for sale - Units sold

= 2,020 - 1,880

= 140

Cost of units available for sale = (440 units * $73) + (960 units * $75) + (620 units * $78)

= $32,120 + $72,000 + $48,360

= $152,480

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Under the First in first out (FIFO) method of inventory valuation, Cost of goods sold consists of the units from beginning inventory and earliest purchases. Ending inventory consists of the units from recent purchases.

140 units in ending inventory consists of December purchases.

Ending inventory = 140 units * $78

= $10,920

Cost of goods sold = Cost of units available for sale - Ending inventory

= $152,480 - $10,920

= $141,560

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Under the Last in first out (LIFO) method of inventory valuation, Cost of goods sold consists of the units from recent purchases. Ending inventory consists of the units from beginning inventory and earliest purchases.

140 units in ending inventory consists of June purchases.

Ending inventory = 140 units * $73

= $10,220

Cost of goods sold = Cost of units available for sale - Ending inventory

= $152,480 - $10,220

= $142,260

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Under the Weighted average method of inventory valuation both Cost of goods sold and Ending inventory are valued at average unit cost.

Weighted average cost per unit = Cost of units available for sale / Number of units available for sale

= $152,480 / 2,020

= $75.49 (rounded to 2 decimal places)

Ending inventory = 140 units * $75.49 = $10,569 (rounded to 0 decimal places)

Cost of goods sold = 1,880 units * $75.49 = $141,921 (rounded to 0 decimal places)

ekkarill92 answered 2 years ago
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