Question

Required information

Use the following information for the Exercises below.

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Laker Company reported the following January purchases and sales data for its only product.

Date			Activities	Units Acquired at Cost								Units sold at Retail
Jan.	1		Beginning inventory	185	units	@	$	11.00	=	$	2,035
Jan.	10		Sales										145	units	@	$	20.00
Jan.	20		Purchase	100	units	@	$	10.00	=		1,000
Jan.	25		Sales										125	units	@	$	20.00
Jan.	30		Purchase	270	units	@	$	9.50	=		2,565
			Totals	555	units					$	5,600		270	units

The Company uses a perpetual inventory system. For specific identification, ending inventory consists of 285 units, where 270 are from the January 30 purchase, 5 are from the January 20 purchase, and 10 are from beginning inventory.

Exercise 5-3 Perpetual: Inventory costing methods LO P1

Required:
1. Complete the table to determine the cost assigned to ending inventory and cost of goods sold using specific identification.
2. Determine the cost assigned to ending inventory and to cost of goods sold using weighted average.
3. Determine the cost assigned to ending inventory and to cost of goods sold using FIFO.
4. Determine the cost assigned to ending inventory and to cost of goods sold using LIFO.

Answer 1

REQUIRED 1

Specific identification method

As per the question the cost per unit for purchases made are as follows:

Begining inventory cost per unit: $11

Jan 20 purchase cost per unit : $10

Jan 30 purchase cost per unit : $9.50

• As per the question 270 units from jan 30 , 5 units from jan 20 and 10 units from begining inventory still remains in inventory
• So, COST OF ENDIND INVENTORY= (270*$9.50)+(5*$10.00)+(10*$11.00) = $2725

• As per the question 175 units from begining inventory and 95 units from jan 20 purchase were sold.
• So, COST OF GOODS SOLD = (175*$11.00)+(95*$10.00) = $2875

REQUIRED 2

WEIGHTED AVERAGE METHOD

Under the weighted average method the cost of ending invnetory is the remainging inventory multiplied by weighted average cost per unit.

Weighted average cost per unit is the Total cost divided by no. of total units

Cost of goods sold is the sales multiplied by weighted average cost per unit

• On jan1 begining inventory was 185 units at a cost per unit of $11.00
• A sale of 145 units of cost per unit of $11.00 and a sales price of $20 were made on jan 10 . So the total cost is now (185*$11.00)-(145*$11.00) = $440
• And the total units remaining are 40 units
• A purchase was made on jan 20 of 100 units at a cost per unit of $10.00
• As a result the total cost would now be $440+(100*$10.00) = $1440
• And the total units were now 140 units
• So the weighted average cost per unit now would be = Total cost/total no. of units = $1440/140 units = $10.28(rounded of to two decimal places)
• On jan 25 a sale of 125 units were made with a weighted cost per unit of $10.28 and sales price of $20.00
• So the total cost now would be = $1440-(125*$10.28)= $155
• And the total no of units is now 15 units
• A purchase of 270 units at a cost per unit of $9.50 was made on jan 30
• So the total cost would now be =(270*$9.50)+$155 = $2720
• And the total units now is 285
• So the weighted average cost per unit now = $2720/285 = $9.543(rounded of to three decimal places as for the accuracy of answer)

So the COST OF ENDING INVENTORY = 285*$9.543

= $2720(rounded of to the nearest whole dollar)

And the COST OF GOODS SOLD = (SALE OF 145 UNITS*$11)+(SALE OF 125 UNITS *10.28)= $2880

REQUIRED 3

FIFO METHOD

Under the FIFO method the first good purchsed would be sold first.

• Begining inventory was 185 units at cost per unit of $11.00
• A sale of 145 units were made on jan 10 at a cost per unit of $11 and sales price of $20
• A purchase of 100 units were made on jan 20 at a cost per unit of $10.00
• A sale of 125 units were made of which 40 units will be sold out of begining inventory at a cost per unit of $11.00 and 85 units will be sold out of jan 20 purchase at a cost of $10.00
• A purchase of 270 units at a cost per unit of $9.50 were made on jan30
• Units remaining were 270 units at a cost per unit of $9.50 of jan 30 and 15 units at a cost per unit of $10.00 of jan 20

So the COST OF ENDING INVENTORY = (270 UNITS*$9.50)+(15 units*$10.00)= $2715

COST OF GOODS SOLD = (Sale of 145 units*$11)+(Sale of 40 units*$11)+(sale of 85 units*$10) = $2885

REQUIRED 4

LIFO METHOD

Under the LIFO method the goods purchases last would be sold first

• Begining inventory was 185 units at cost per unit of $11.00
• A sale was made on jan 10 of 145 units at a cost per unit of $11.00 and a sales price of $20.00
• Purchase was made on jan 20 of 100 units at a cost per unit of $10.00
• A sale was made on jan 25 of 125 units out of which 100 units will be sold out of jan20 purchase of cost per unit of $10.00 and 25 units will be sold out of begining inventory at a cost per unit of $11.00
• A purchase was made on jan 30 of 270 units at a cost per unit of $9.50
• Remaining inventories are 270 units of jan 30 purchase at a cost per unit of $9.50 and 15 units of begining inventory at a cost per unit of $11.00

So the COST OF ENDING INVENTORY =(270*$9.50)+(15*$11.00)= $2730

COST OF GOODS SOLD =(Sale of 145 units*$11)+(sale of 100 units*$10.00)+(25 units*$11)= $2870