Question

Periodic Inventory by Three Methods; Cost of Merchandise Sold

The units of an item available for sale during the year were as follows:

Jan. 1	Inventory	50 units @ $110
Mar. 10	Purchase	60 units @ $122
Aug. 30	Purchase	20 units @ $130
Dec. 12	Purchase	70 units @ $134

There are 80 units of the item in the physical inventory at December 31. The periodic inventory system is used.

Determine the inventory cost and the cost of merchandise sold by three methods. Round interim calculations to one decimal and final answers to the nearest whole dollar.

Cost of Merchandise Inventory and Cost of Merchandise Sold
Inventory Method	Merchandise Inventory	Merchandise Sold
First-in, first-out (FIFO)	$	$
Last-in, first-out (LIFO)
Weighted average cost

Note that this exercise uses the periodic inventory system. FIFO means that the first units purchased are assumed to be the first to be sold. Therefore, ending inventory costs for the period are calculated by taking the number of items remaining in the physical inventory times the most recent purchase price. If the number of items in last purchase layer is less than the number in ending inventory, the balance of the ending inventory items must be recorded at the second most recent purchase cost. The cost of merchandise sold for the period can be calculated by subtracting the ending inventory from the total cost of goods available for sale.

Note that this exercise uses the periodic inventory system. LIFO means the last units purchased are assumed to be the first to be sold. Therefore the ending inventory for the period is made up of the earliest costs from the period (the beginning inventory). If the number of units in the ending inventory is greater than the units in the beginning inventory, the excess units will be recorded at the next oldest cost associated with the first purchase. The cost of merchandise sold for the period can be calculated by subtracting the ending inventory from the total cost of goods available for sale.

Note that this exercise uses the periodic inventory system. Average unit cost means the average unit cost of all available units purchased is applied to the number of units sold and those in ending inventory. Therefore, you must first obtain a unit cost by dividing the total cost of all units available for sale by the number of units available for sale. Then multiply the number of items remaining in the physical inventory times this unit cost. The cost of merchandise sold for the period can be calculated by subtracting the ending inventory from the total cost of goods available for sale.

Answer 1

• All working forms part of the answer
• Workings

FIFO	Cost of Goods available for sale			Cost of Goods Sold			Ending Inventory
	Units	Cost/unit	COG for sale	Units sold	Cost/unit	COGS	Units	Cost/unit	Ending inventory
Beginning Inventory	50	$              110.00	$                        5,500.00	50	$       110.00	$           5,500.00	0	$      110.00	$                         -
Purchases:
10-Mar	60	$              122.00	$                        7,320.00	60	$       122.00	$           7,320.00	0	$      122.00	$                         -
30-Aug	20	$              130.00	$                        2,600.00	10	$       130.00	$           1,300.00	10	$      130.00	$            1,300.00
12-Dec	70	$              134.00	$                        9,380.00		$       134.00	$                        -	70	$      134.00	$            9,380.00
TOTAL	200		$                      24,800.00	120		$        14,120.00	80		$          10,680.00

LIFO	Cost of Goods available for sale			Cost of Goods Sold			Ending Inventory
	Units	Cost/unit	COG for sale	Units sold	Cost/unit	COGS	Units	Cost/unit	Ending inventory
Beginning Inventory	50	$              110.00	$                        5,500.00	0	$       110.00	$                        -	50	$      110.00	$            5,500.00
Purchases:	0	$                       -	$                                     -
10-Mar	60	$              122.00	$                        7,320.00	30	$       122.00	$           3,660.00	30	$      122.00	$            3,660.00
30-Aug	20	$              130.00	$                        2,600.00	20	$       130.00	$           2,600.00	0	$      130.00	$                         -
12-Dec	70	$              134.00	$                        9,380.00	70	$       134.00	$           9,380.00	0	$      134.00	$                         -
TOTAL	200		$                      24,800.00	120		$        15,640.00	80		$            9,160.00

Average Method	Cost of Goods available for sale			Cost of Goods Sold			Ending Inventory
	Units	Cost/unit	COG for sale	Units sold	Cost/unit	COGS	Units	Cost/unit	Ending inventory
Beginning Inventory	50	$              110.00	$                       5,500.00
Purchases:	0	$                       -	$                                     -
10-Mar	60	$              122.00	$                        7,320.00
30-Aug	20	$              130.00	$                        2,600.00
12-Dec	70	$              134.00	$                        9,380.00
TOTAL	200	$         124.0000	$                      24,800.00	120	$       124.00	$           14,880.0	80	$      124.00	$            9,920.00

• Answer

Inventory Method	Merchandise Inventory	Merchandise Sold
FIFO	$          10,680.00	$          14,120.00
LIFO	$             9,160.00	$          15,640.00
Weighted Average	$             9,920.00	$          14,880.00