In: Accounting
Periodic inventory by three methods
The beginning inventory for Midnight Supplies and data on purchases and sales for a three-month period are shown below:
Date | Transaction | Number of Units |
Per Unit | Total | ||
Jan. 1 | Inventory | 7,500 | $75.00 | $562,500 | ||
10 | Purchase | 22,500 | 85.00 | 1,912,500 | ||
28 | Sale | 11,250 | 150.00 | 1,687,500 | ||
30 | Sale | 3,750 | 150.00 | 562,500 | ||
Feb. 5 | Sale | 1,500 | 150.00 | 225,000 | ||
10 | Purchase | 54,000 | 87.50 | 4,725,000 | ||
16 | Sale | 27,000 | 160.00 | 4,320,000 | ||
28 | Sale | 25,500 | 160.00 | 4,080,000 | ||
Mar. 5 | Purchase | 45,000 | 89.50 | 4,027,500 | ||
14 | Sale | 30,000 | 160.00 | 4,800,000 | ||
25 | Purchase | 7,500 | 90.00 | 675,000 | ||
30 | Sale | 26,250 | 160.00 | 4,200,000 |
1. Determine the inventory on March 31 and the cost of goods sold for the three-month period, using the first-in, first-out method and the periodic inventory system.
Inventory, March 31 | $ |
Cost of goods sold | $ |
2. Determine the inventory on March 31 and the cost of goods sold for the three-month period, using the last-in, first-out method and the periodic inventory system.
Inventory, March 31 | $ |
Cost of goods sold | $ |
3. Determine the inventory on March 31 and the cost of goods sold for the three-month period, using the weighted average cost method and the periodic inventory system. Round the weighted average unit cost to the nearest cent.
Inventory, March 31 | $ |
Cost of goods sold | $ |
4. Compare the gross profit and the March 31 inventories, using the following column headings. For those boxes in which you must enter subtracted or negative numbers use a minus sign.
FIFO | LIFO | Weighted Average | |
Sales | $ | $ | $ |
Cost of goods sold | |||
Gross profit | $ | $ | $ |
Inventory, March 31 | $ | $ | $ |
1)FIFO
2)LIFO
1st picture
2nd picture
3)Weighted Average Method
4) FIFO LIFO Weighted Average
Sales 19,875,000 19,875,000 19,875,000
(-)Cost of Goods Sold (10,891,875) (11,021,250) (10,901,250)
Gross Profit 8,983,125 8,853,750 8,973,750
Inventory 1,010,625 881,250 1,001,250
Sales figure will be unaffected by the method of valuation of stock. Since the cost of raw material is rising, raw material purchased earlier at a cheaper price will be included in COGS under FIFO. Under LIFO, Cost expensed under COGS will be higher hence. Due to this, FIFO method gives higher Gross Profit compared to LIFO. Under FIFO, goods purchased on later dates will form a part of inventory. Since at later dates, cost was higher, FIFO has higher closing inventory balance compared to LIFO.
Weighted Average Method balances out the fluctuations between LIFO and FIFO, and gives a moderate answer to each line item.