Question

Periodic inventory by three methods; cost of goods sold

The units of an item available for sale during the year were as follows:

Jan. 1	Inventory	40 units at $100
Mar. 10	Purchase	70 units at $108
Aug. 30	Purchase	30 units at $114
Dec. 12	Purchase	60 units at $120

There are 80 units of the item in the physical inventory at December 31. The periodic inventory system is used.

Determine the ending inventory cost and the cost of goods sold by three methods. Round interim calculations to one decimal and final answers to the nearest whole dollar.

Cost of Ending Inventory and Cost of Goods Sold
Inventory Method	Ending Inventory	Cost of Goods Sold
First-in, first-out (FIFO)	$fill in the blank 1	$fill in the blank 2
Last-in, first-out (LIFO)	fill in the blank 3	fill in the blank 4
Weighted average cost	fill in the blank 5	fill in the blank 6

Answer 1

Begining inventory=40 units

The total purchases made during the year =March 10 purchase+Aug 30 purchase+Dec 12 purchase =70 units+30 units+60 units = 160 units

Ending inventory at 31 dec = 80 units

So,

The number of units sold=Begining inventory+The total purchases made during the year-Ending inventory at 31 dec = 40 units+160 units-80 units= 120 units

So 120 units were sold during the year

(a)

FIFO

Under FIFO perpectual inventory system the units purchased first will be sold first

• So the 120 units of sale were made from
• 40 units from Jan 1 begining inventory @ a cost per unit of $100 =$4000
• 70 units from March 10 purchases @ a cost per unit of $108=$7560
• 10 units from august 30 purchases @ a cost per unit of $114=$1140

• So total COST OF GOODS SOLD UNDER FIFO= (40 units from Jan 1 begining inventory*$100)+(70 units from March 10 purchases*$108)+(10 units from august 30 purchases*$114)=$12700

Remaining inventory's are 20 units of aug 30 purchases(30 units purchased-10 units sold) @ a cost per unit of $114 and dec 12 purchases of 60 units @ cost per unit of $120

• So ENDING INVENTORY UNDER FIFO=(20 Units remaining at aug 30 purchase*$114)+(60 units of dec 12 purchase*$120)=$9480

(b)

LIFO

Under LIFO perpectual inventory system the units purchased last will be sold first

• So the 120 units of sale were made from
• 60 units from dec 12 purchases @ a cost per unit of $120 =$7200
• 30 units from august 30 purchases @ a cost per unit of $114=$3420
• 30 units from march 10 purchases @ a cost per unit of $108=$3240

• So total COST OF GOODS SOLD UNDER LIFO= (60 units from dec 12 purchases*$120)+(30 units from august 30 purchases*$114)+(30 units from march 10*$108)=$13860

Remaining inventory's are 40 units of march 10 purchases(70 units purchased-30 units sold) @ a cost per unit of $108 and jan 1 begining inventory of 40 units @ cost per unit of $100

• So ENDING INVENTORY UNDER FIFO=(40 units remaining of march 10 purchases*$108)+(40 units of jan 1 begining inventory*$100)=$8320

(c)

Weighted average cost

Under weighted average cost method the Cost of ending inventory is the units in ending inventory multiplied by the weighted average cost per unit

And the Cost of goods sold is the number of units sold multiplied by the weighted average cost per unit

• The weighted average cost per unit = Total Cost of purchases and inventory/Total units in inventory
• Total cost of purchases and inventory=(jan 1 begining inventory of 40 units*$100)(march 10 purchases of 70 units*$108)(aug 30 purchases of 30 units*$114)(December 12 purchases of 60 units*$120)=$22180
• Total units in inventoy at dec 12 = jan 1 begining inventory of 40 units+march 10 purchases of 70 units+aug 30 purchases of 30 units+December 12 purchases of 60 units= 200 units

• So,The weighted average cost per unit = Total Cost of purchases and inventory/Total units in inventory =$22180/200 units =$110.9

• COST OF GOODS SOLD UNDER WIGHTED AVERAGE COST METHOD= Total number of units sold*weighted average cost per unit = 120 units*$110.9=$13308

• COST OF ENDING INVENTORY UNDER WIGHTED AVERAGE COST METHOD= Units in ending inventory*weighted average cost per unit = 80 units*$110.9=$8872

Inventory method	Ending inventory	Cost of goods sold
FIFO	$9480	$12700
LIFO	$8320	$13860
Weighted average cost	$8872	$13308