Question

The following data are available for Sellco for the fiscal year ended on January 31, 2017:

Sales	850	units
Beginning inventory	230	units	@	$	3
Purchases, in chronological order	330	units	@	$	5
	420	units	@	$	7
	190	units	@	$	8

Required:

a. Calculate cost of goods sold and ending inventory under the cost flow assumptions, FIFO, LIFO and Weighted average (using a periodic inventory system): (Round unit cost to 2 decimal places.)

	Cost of Goods Sold Ending Inventory FIFO LIFO Weighted average

b. Assume that net income using the weighted-average cost flow assumption is $13,200. Calculate net income under FIFO and LIFO. (Round unit cost to 2 decimal places.)

	Net Income FIFO LIFO

Answer 1

a.

Cost of goods sold and Ending inventory (FIFO):

Cost of goods sold			Ending inventory
Units	Unit cost price
230	$3	$690
330	$5	$1,650
290	$7	$2,030
850	Cost of goods sold	$4,370
			130	$7	$910
			190	$8	$1,520
			320	Ending inventory	$2,430

Cost of goods sold and Ending inventory (LIFO):

Cost of goods sold			Ending inventory
Units	Unit cost price
190	$8	$1,520
420	$7	$2,940
240	$5	$1,200
850	Cost of goods sold	$5,660
			90	$5	$450
			230	$3	$690
			320	Ending inventory	$1,140

Cost of goods sold and Ending inventory (Weighted Average):

Particulars	Units	Cost per unit
Beginning inventory	230	$3	$690
Add: Purchases:	330	$5	$1,650
	420	$7	$2,940
	190	$8	$1,520
Total	1,170		$6,800
Average cost per unit ($6,800 /1,170) = $5.81
Cost of goods sold = 850 units * $5.81 per unit = $4,938.5
Ending inventory = (1,170 - 850) = 320 units * $5.81 per unit = $1,859.2

b.

Net income under FIFO = Net income under Weighted average +/- (COGS-Weighted average - COGS-FIFO)

Net income under FIFO = $13,200 + 568.5 ($4,938.5 - 4,370)

Net income under FIFO = $13,768.5

Net income under LIFO = Net income under Weighted average +/- (COGS-LIFO - COGS-Weighted average )

Net income under LIFO = $13,200 - 721.5 ($5,660 - 4,938.5)

Net income under LIFO = $12,478.5

As COGS is lower in FIFO than Weighted average it will be added to Net income (weighted average)

As COGS is higher in LIFO than Weighted average it will be deducted from Net income (weighted average)