Question

Share, Inc.
The following data is available for one of the products sold by Share, Inc., which uses a
perpetual inventory system.

May 1 On hand, 10 units at $2 each
8 Sold 6 units at $10 each
14 Purchased 30 units at $3 each
23 Sold 24 units at $10 each

Required:
a. If the moving average method is used, how much is cost of goods sold for May?
b. If the moving average method is used, how much is ending inventory on May 30?
c. If the FIFO method is used, how much is ending inventory on May 30?
d. If the LIFO method is used, how much is cost of goods sold for May?
e. How the valuations of inventory differ in average, LIFO and FIFO methods of inventory
valuation?

Answer 1

Ans:

Date	Units	Rate/unit	Total cost
1-May On hand	10	2$	20$
14-May purchases	30	3$	90$
Average cost per unit=Total cost/Total Units	40	2.75$	110$
a)Cost of goods sold May 8th 6units+May 23rd 24units	30	2.75$	82.5$
b)Ending inventory May 30th	10	2.75$	27.5$

c. If the FIFO method is used,the ending inventory on May 30^th is

10 units*3$=30$

Note:

In FIFO (first in first out) method sales are made from early purchases so Ending inventory is out of Recent purchases made on the date of may 14^th 10 units@3$=30$

d. If the LIFO method is used, the cost of goods sold for May

30 units*3$=90$

Note:

Total sales units=30 units(6+24)

In LIFO (Last in first out) method sales are made from Recent purchases so sales are made from Recent purchases made on the date of may 14^th 30 units@3$=90$

e)

The Difference between FIFO method, LIFO method and Weighted Average Cost method are three ways of valuing inventory.

• FIFO method assumes that the first inventories bought are the first ones to be sold, and that inventories bought later are sold later.
• LIFO method assumes that the last inventories bought are the first ones to be sold, and that inventories bought first are sold last.
• Average cost method is ending inventory is valued at total cost/total number of units

note:

under perpetual inventory system stock value made at respective period end