Question

Fulbright Corp. uses the periodic inventory system. During its first year of operations, Fulbright made the following purchases (listed in chronological order of acquisition):

• 44 units at $96
• 74 units at $76
• 172 units at $50

Sales for the year totaled 271 units, leaving 19 units on hand at the end of the year.

Ending inventory using the average cost method is: (Do not round unit cost calculation. Round your final answer to the nearest whole dollar amount.)

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On January 1, 2018, Badger Inc. adopted the dollar-value LIFO method. The inventory cost on this date was $100,200. The ending inventory, valued at year-end costs, and the relative cost index for each of the next three years is below:

Year-end	Ending inventory at year-end costs				Cost Index
2018	$	126,630				1.05
2019		143,880				1.10
2020		154,440				1.20

In determining the inventory balance should Badger report in its 12/31/2019 balance sheet:

Answer 1

Solutions:

Answer to Q.No. 1 - Fulbright Corp.

Value of Ending Inventory (using avg cost method) =

No. of closing units (given) × Average cost per unit

= 19 units * $ 63.61379

= $ 1,209 ( rounded )

Working Notes :

1) Calculation of Total Cost

	Units	Cost per unit	Total
Purchase 1	44	$ 96	$ 4,224
Purchase 2	74	$ 76	$ 5,624
Purchase 3	172	$ 50	$ 8,600
	290		$ 18,448

2) Calculation of average cost per unit

Average Cost per unit = Total cost ÷ Total units

= 18,448 ÷ 290 units

= $ 63.61379

Answer to Q.No. 2 - Badger Inc.

Inventory balance to be reported in balance sheet as on 31st December, 2019 is $ 132,840

	Cost Index	Amount
Base year - Cost of inventory $100,200	$ 1	$ 100,200
Change in price in 2018 - $20,400	$ 1.05	$ 21,420
Change in price in 2019 - $10,200	$ 1.10	$ 11,220
Inventory Balance (12/31/2019)		$ 132,840

Working Notes :

1).Computation of inventory at base year cost :

Date	Inventory at year end cost (I)	Cost Index (II)	Inventory at base year cost (I) ÷ (II)
01/01/18	$ 100,200	1	$ 100,200
12/31/18	$ 126,630	1.05	$ 120,600
12/31/19	$ 143,880	1.10	$ 130,800
12/31/20	$ 154,440	1.20	$ 128,700

2). Computation of change in prices

Date	Inventory at year end cost	Inventory at base year cost	Change in prices
1/1/18	$ 100,200	$ 100,200	$ 0
12/31/18	$ 126,630	$ 120,600	$ 20,400
12/31/19	$ 143,880	$ 130,800	$ 10,200
12/31/20	$ 154,440	$ 128,700	$ -2,100