Question

XYZ Company is a startup company, and it has purchased inventory as follows:

DATE	QUANTITY	PRICE
7/1/14	1000	$1.05
8/1/14	500	$1.10
9/1/14	800	$1.00
10/1/14	1500	$.90
11/1/14	2500	$1.02
12/1/14	750	$1.15

Assume you have sold 2,250 units in 2014. Given that fact, how much would inventory be valued on the balance sheet under the following methods and how much Cost of Goods Sold would be recognized as well?

LIFO Method

FIFO Method

Average Cost Method

Answer 1

FIFO Method

Cost of goods sold

	Units	Rate	Amount
Sale from 7 Jan purchase	1,000	$ 1.05	$ 1,050.00
Sale from 8 Jan purchase	500	$ 1.10	$     550.00
Sale from 9 Jan purchase	750	$ 1.00	$     750.00
Cost of goods sold	2,250		$ 2,350.00

Ending inventory

	Units	Rate	Amount
Balance from 9 Jan purchase	50	$ 1.00	$        50.00
Balance from 10 Jan purchase	1,500	$ 0.90	$ 1,350.00
Balance from 11 Jan purchase	2,500	$ 1.02	$ 2,550.00
Balance from 12 Jan purchase	750	$ 1.15	$     862.50
	4,800		$ 4,812.50

LIFO Method

Cost of goods sold

	Units	Rate	Amount
Sale from 12 Jan purchase	750	$ 1.15	$     862.50
Sale from 11 Jan purchase	1,500	$ 1.02	$ 1,530.00
Cost of goods sold	2,250		$ 2,392.50

Ending inventory

	Units	Rate	Amount
Balance from 7 Jan purchase	1,000	$ 1.05	$ 1,050.00
Balance from 8 Jan purchase	500	$ 1.10	$     550.00
Balance from 9 Jan purchase	800	$ 1.00	$     800.00
Balance from 10 Jan purchase	1,500	$ 0.90	$ 1,350.00
Balance from 11 Jan purchase	1,000	$ 1.02	$ 1,020.00
	4,800		$ 4,770.00

Average cost method

Average cost per unit = Total purchase cost / Total units
Total purchases = (1,000*$1.05)+(500*$1.10)+(800*$1)+(1,500*$0.9)+(2,500*$1.02)+(750*$1.15)	$ 7,162.50
Total units (1,000+500+800+1,500+2,500+750)	7,050
Average cost per unit ($7,163/7,050)	$        1.016

Cost of goods sold = 2,250*$1.016

Cost of goods sold = $2,285.90

Ending inventory = (7,050-2,250)*$1.016

Ending inventory = $4,876.80