Question

The following is the information related to the movement of the goods at Al-Silasil Company during the month of July 2011:
Number of units    100 / 400 /200 /300 /500 Total 1500
Unit price 4/6/7/10/12
Total cost 400/2400 /1400 /3000 /6000
and upon inventory it is clear that there are 600 units not sold at the end of July 2011. Required: Determine the cost of goods at the end of the period, and the cost of sales according to
1. First in first out (FIFO) method 2. Incoming in first out first (LITO) method

Answer 1

Total cost of goods purchased = 400+2400+1400+3000+6000=13200

1)FIFO Method: Under FIFO method, closing stock always consists of recently procured units.

Closing stock is of 600 units.

Closing stock under FIFO method consists of recently purchased units.

Hence out of 600 units, 500 units are the units which are acquired at 12 per unit and remaining 100 units are the units which are acquired at 10 per unit

Cost of inventory=(500*12)+(100*10)

=6000+1000

=7000

Cost of sales = Opening stock + Purchases-closing stock

=0+13200-7000

=6200

2)LIFO Method: Under LIFO method, closing stock ususlly consists of units procured initially.

Usually, to compute cost of inventory under LIFO method, dates of purchases and dates of sales are required. Since nothing regarding that is mentioned in the question it is assumed that inventory consists of units which were procured initially.

So out of 600 units:

a) 100 units are purchased at 4 per unit

b) 400 units are purchased at 6 per unit

c)Remaining 100 units are purchased at 7 per unit

So, cost of inventory=(100*4)+(400*6)+(100*7)

=400+2400+700

=3500

Cost of sales = Opening stock + Purchases-closing stock

=0+13200-3500

=9700