Question

Question 1.

There are transactions as below.

1/1: The beginning number of items was 1,000 items. The total amount was 12,000 JPY.

3/15: Purchased 2,000 items by 18,000 JPY.

4/24: Sold 500 items.

10/20: Purchased 1,000 items by 10,000 JPY.

12/2: Sold 1,500 items.

a. How much is the ending balance of the inventory by FIFO method?

1. 18,000 JPY
2. 19,000 JPY
3. 20,000 JPY
4. 21,000 JPY
5. 22,000 JPY

b. How much is the ending balance of the inventory by LIFO method?

1. 18,000 JPY
2. 19,000 JPY
3. 20,000 JPY
4. 21,000 JPY
5. 22,000 JPY

c. How much is the ending balance of the inventory by Average method we learned at class?

1. 18,000 JPY
2. 19,000 JPY
3. 20,000 JPY
4. 21,000 JPY
5. 22,000 JPY

Answer 1

FIFO Method
Date	Purchases			Sales			Balance
	Units	Unit Price	Total Amount	Units	Unit Price	Total Amount	Units	Unit Price	Total Amount
1/1	Balance						1,000	12	12,000
3/15	2,000	9	18,000				1,000 2,000	12 9	12,000 18,000
4/24				500	12	6,000	500 2,000	12 9	6,000 18,000
10/20	1,000	10	10,000				500 2,000 1,000	12 9 10	6,000 18,000 10,000
12/2				500 1,000	12 9	6,000 9,000	1,000 1,000	9 10	9,000 10,000

Ending Inventory Balance under FIFO Method = (1,000 units x 9 JPY) + (1,000 units x 10 JPY)

= 9,000 JPY + 10,000 JPY = 19,000 JPY

The Correct Option is the 2^nd Option = 19,000 JPY

LIFO Method
Date	Purchases			Sales			Balance
	Units	Unit Price	Total Amount	Units	Unit Price	Total Amount	Units	Unit Price	Total Amount
1/1	Balance						1,000	12	12,000
3/15	2,000	9	18,000				1,000 2,000	12 9	12,000 18,000
4/24				500	9	4,500	1,000 1,500	12 9	12,000 13,500
10/20	1,000	10	10,000				1,000 1,500 1,000	12 9 10	12,000 13,500 10,000
12/2				1,000 500	10 9	10,000 4,500	1,000 1,000	12 9	12,000 9,000

Ending Inventory Balance under LIFO Method = (1,000 units x 12 JPY) + (1,000 units x 9 JPY)

= 12,000 JPY + 9,000 JPY = 21,000 JPY

The Correct Option is the 4^th Option = 21,000 JPY

Average Method
Date	Purchases			Sales			Balance
	Units	Unit Price	Total Amount	Units	Unit Price	Total Amount	Units	Unit Price	Total Amount
1/1	Balance						1,000	12	12,000
3/15	2,000	9	18,000				3,000	10	30,000
4/24				500	10	5,000	2,500	10	25,000
10/20	1,000	10	10,000				3,500	10	35,000
12/2				1,500	10	15,000	2,000	10	20,000

Note:

Price per Unit as on 3/15 = (12,000 JPY + 18,000 JPY) / (1,000 units + 2,000 units) = 10 JPY per Unit

Price per Unit as on 10/20 = (25,000 JPY + 10,000 JPY) / (2,500 units + 1,000 units) = 10 JPY per Unit

Ending Inventory Balance under Average Method = 2,000 units x 10 JPY = 20,000 JPY

The Correct Option is the 3^rd Option = 20,000 JPY