In its first month of operations, Literacy for the Illiterate opened a new bookstore and bought...

In its first month of operations, Literacy for the Illiterate opened a new bookstore and bought merchandise in the following order: (1) 400 units at $6 on January 1, (2) 600 units at $8 on January 8, and (3) 870 units at $9 on January 29. Assume 1,070 units are on hand at the end of the month.

Calculate the cost of goods available for sale, cost of goods sold, and ending inventory under the (a) FIFO, (b) LIFO, and (c) weighted average cost flow assumptions. Assume perpetual inventory system and sold 800 units between January 9 and January 28. (Round your intermediate calculations to 2 decimal places.)

	FIFO	LIFO	Weighted Average Cost
Goods Available for Sale
Cost of Goods Sold
Ending Inventory

Solutions

Expert Solution

1. FIFO

		Transaction	Closing balance
Date	Particulars	Units	Price	Value	Units	Price	Value
Jan-01	Purchase	400	6	2400	400	6	2400
Jan-08	Purchase	600	8	4800	1000	7.20 (7200/1000)	7200
B/w Jan 09 and Jan 28	Sale	800	400 @ 6 400 @ 8	5600	200	8	1600
Jan-29	Purchase	870	9	7830	1070	200 @ 8 870 @ 9	9430

Goods available for sale as on Jan 09 = 1000 units (400 @ $6 and 600 @ $8) of $ 7200

Cost of goods sold = $5600 (400 @ $6 and 400 @ $8)

Ending inventory = 1070 units (200 @ $8 and 800 @ $9) of $ 9430

2. LIFO

		Transaction	Closing balance
Date	Particulars	Units	Price	Value	Units	Price	Value
Jan-01	Purchase	400	6	2400	400	6	2400
Jan-08	Purchase	600	8	4800	1000	400 @ 6 600 @ 8	7200
B/w Jan 09 and Jan 28	Sale	800	600 @ 8 200 @ 6	6000	200	6	1200
Jan-29	Purchase	870	9	7830	1070	200 @ 6 870 @ 9	9030

Goods available for sale as on Jan 09 = 1000 units (400 @ $6 and 600 @ $8) of $ 7200

Cost of goods sold = $6000 (600 @ $8 and 200 @ $6)

Ending inventory = 1070 units (200 @ $6 and 800 @ $9) of $ 9030

3. Weighted average cost method

		Transaction	Closing balance
Date	Particulars	Units	Price	Value	Units	Price	Value
Jan-01	Purchase	400	6	2400	400	6	2400
Jan-08	Purchase	600	8	4800	1000	7.20 (7200/1000)	7200
B/w Jan 09 and Jan 28	Sale	800	7.20	5760	200	7.20	1440
Jan-29	Purchase	870	9	7830	1070	8.66 (9270/1070)	9270

Goods available for sale as on Jan 09 = 1000 units @7.20 per unit = $ 7200

Cost of goods sold = $5760 (800 units @ 7.20 per unit)

Ending inventory = 1070 units $9270 value

ekkarill92 answered 1 year ago

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