Question

Transactions of ABC Corporation for the month of January are as follows:

Units    Unit cost

Beginning, Jan. 1 10,000 20

Purchases, Jan. 10 10,000 22

Sold, Jan. 15 15,000

Purchases, Jan. 18 5,000 23

Sold, Jan. 25 8,000

The company uses the perpetual inventory system. Determine the cost of inventory on January 31 and cost of goods sold under:

	Inventory Cost Flow	Ending Inventory	Cost of Goods Sold
First in, first out (FIFO)
Moving average
Last in, first out (LIFO)

Answer 1

A total of 15,000 + 8,000 = 23,000 units have been sold.

Under FIFO, sold items comprises of 10,000 units @ 20 from opening inventory + 10,000 units @ 22 purchased on Jan 10 + 3,000 units @ 23 purchased on Jan 18.

Inventory will comprise of remaining 2,000 units @ 23

Hence, ending inventory = 2,000 x 23 = 46,000

Hence, Cost of Goods Sold, COGS = 10,000 x 20 + 10,000 x 22 + 3,000 x 23 = 489,000

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Moving Average:

Moving average price after purchases on Jan 10 = (10,000 x 20 + 10,000 x 22) / (10,000 + 10,000) = 21

15,000 of this is sold on Jan 15. Hence, COGS on account of this sale = 15,000 x 21 = 315,000

Inventory after this = 5,000 @ 21

Moving average price after purchases on Jan 18 = (5,000 x 21 + 5,000 x 23) / (5,000 + 5,000) = 22

8,000 of this is sold on Jan 25. Hence, COGS on account of this sale = 8,000 x 22 = 176,000

Inventory after this = 2,000 @ 22

Hence, ending inventory = 2,000 x 22 = 44,000

and COGS = 315,000 + 176,000 = 491,000

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LIFO:

This time the ending inventory will comprise of 2,000 units from the earliest lot i.e opening balance. Hence, the ending inventory = 2,000 x 20 = 40,000

and COGS = 8,000 x 20 + 10,000 x 22 + 5,000 x 23 = 495,000