Question

EBECEDE Company has the following inventory transactions for the month of February:

	Units	Unit Cost
Beginning, Feb. 1	10,000	40
Purchases, Feb. 10	10,000	43
Sold, Feb. 15	15,000
Purchases, Feb. 18	5,000	44
Sold, Feb. 25	2,000

The company uses the perpetual inventory system. Determine the cost of inventory on February 29 and cost of goods sold under:

Inventory Cost Flow	Ending Inventory	Cost of Goods Sold (COGS
First in, first out (FIFO)
Weighted Average
Last in, first out (LIFO)

Answer 1

Answer:

Inventory Cost Flow	Ending Inventory	Cost of Goods Sold (COGS)
First in, first out (FIFO)	349,000	701,000
Weighted Average	342,000	708,000
Last in, first out (LIFO)	332,000	718,000

Calculation:

Here we need to determine the cost of inventory on February 29 and cost of goods sold under the FIFO, LIFO and Weighted Average method. Here the company uses the  perpetual inventory system.

So using the FIFO method, the first balance of the inventory bought will be sold first. Even if there will be another purchases during the month the first purchase inventory will be sold. Here there is first two purchases on 1st and 10th, so when the sale is happend on 15th, the first set of inventory sold will be from 1st. The calculation is shown below:

Date	# of Units	Cost per Unit	Goods Purchased	# of Units	Cost per Unit	Goods Sold	# of Units	Cost per Unit	Inventory Balance
Feb-01	10,000	40	400,000				10,000	40	400,000
Feb-10	10,000	43	430,000				10,000	40	400,000
							10,000	43	430,000
									830,000
Feb-15				10,000	40	400,000	5,000	43	215,000
				5,000	43	215,000
Feb-18	5,000	44	220,000				5,000	43	215,000
							5,000	44	220,000
									435,000
Feb-25				2,000	43	86,000	3,000	43	129,000
							5,000	44	220,000
				17,000		701,000	8,000		349,000

So using the Weighted average method, we need to find the average of the inventory soon after a purchase happens. So here first we need to add up the 1st and 10th purchase and then add up the balance Then we need to divide it with the units. Like that we need to do the rest of the balances.

Cost per Unit = Inventory Balance / # of Units

Date	# of Units	Cost per Unit	Goods Purchased	# of Units	Cost per Unit	Goods Sold	# of Units	Cost per Unit	Inventory Balance
Feb-01	10000	40	400000				10000	40	400000
Feb-10	10000	43	430000				10000	40	400000
							10000	43	430000
							20000	41.5	830000
Feb-15				15000	41.5	622500	5000	41.5	207500
Feb-18	5000	44	220000				5000	41.5	207500
							5000	44	220000
							10000	42.75	427500
Feb-25				2000	42.75	85500	8000	42.75	342000
				17000		708000

So using the LIFO method, the last balance of the inventory bought will be sold first. Even if there will be first purchase balances in the month the last purchase inventory will be sold. Here there is first two purchases on 1st and 10th, so when the sale is happend on 15th, the sale will be of from 10th first. The calculation is shown below:

Date	# of Units	Cost per Unit	Goods Purchased	# of Units	Cost per Unit	Goods Sold	# of Units	Cost per Unit	Inventory Balance
Feb-01	10000	40	400000				10000	40	400000
Feb-10	10000	43	430000				10000	40	400000
							10000	43	430000
									830000
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