Question

1. Jeters Company uses a periodic inventory system and reports the following for the month of September.

Date	Explanation	Units	Unit Cost	Total Cost
9/1	Inventory	120	$5	$ 600
9/12	Purchases	370	6	2.220
9/23	Purchases	200	7	1,400
9/30	Inventory	230

Instructions

1. Compute the cost of ending inventory and the cost of goods sold using the FIFO, LIFO, and average-cost methods. (Round average unit cost to three decimal places)
2. Which costing method gives the highest ending inventory? The highest cost of goods sold? Why?
3. How do the average-cost values for ending inventory and cost of goods sold relate to ending inventory and cost of goods sold for FIFO and LIFO?
4. Calculate Inventory Turnover Ratio and Days in Inventory under FIFO, LIFO, and average-cost methods.
5. Calculate LIFO reserve (the difference between ending inventory using LIFO and ending inventory using FIFO) .

Answer 1

(A)
Date	Explanation	Units	Unit Cost	Total Cost
01-09-2020	Inventory	120	5	600
12-09-2020	Purchases	370	6	2,220
23-09-2020	Purchases	200	7	1,400
30-09-2020	Inventory	230
Total				4,220
FIFO
Sales Units		= 120+370+200-230
		460
Cost of Goods Sold		= (120*5)+(340*6)
		2640
Cost of Closing Inventory		= (30*6)+(200*7)
		1580
LIFO
Sales Units		= 120+370+200-230
		460
Cost of Goods Sold		= (200*7)+(260*6)
		2960
Cost of Closing Inventory		= (110*6)+(120*5)
		1260
Average Cost
Sales Units		= 120+370+200-230
		460
Average Cost		= Total Cost / Total Units
		= 4220 / 690
		6.116
Cost of Goods Sold		= 460*6.116
		2813.36
Cost of Closing Inventory		= 230*6.116
		1406.68

(B)
	Method	Amount	Reason
Highest Inventory	FIFO	1580	Latest units having higher unit cost are comprised in the inventory.
Highest Cost of Goods Sold	LIFO	2960	Higher unit cost units are sold in LIFO methid

( C )

closing inventory under Average cost is higher than LIFO and lower than FIFO Method &

Cost of Goods sold under Average Cost is higher than FIFO and lower than LIFO Method

(D)
Inventory Turnover Ratio	= Cost of Goods Sold / Avg Inventory
Avg Inventory	= Beg Inventory + Closing Inventory / 2
Days in Inventory	= Days in Accounting Period / Turnover ratio
Method	Cost of Goods Sold	Beg Inventory	Closing Inventory	Avg Inventory	Turnover Ratio	Days in Inventory
FIFO	2640	600	1580	1,090	2.42	12.39
LIFO	2960	600	1260	930	3.18	9.43
Avg Cost	2813.36	600	1406.68	1,003	2.80	10.70

Days in Acccounting Period is assumed to be 30 days

( E )
LIFO Reserve	=1580-1260
	320