Question

Alta Ski Company's inventory records contained the following information regarding its latest ski model. The company uses a periodic inventory system.

Beginning inventory, January 1, 2021	1,350	units @ $100 each
Purchases:
January 15	2,800	units @ $115 each
January 21	2,600	units @ $120 each
Sales:
January 5	1,300	units @ $140 each
January 22	1,700	units @ $150 each
January 29	1,150	units @ $155 each
Ending inventory, January 31, 2021	2,600	units

Required:

1. 1a. Which method, FIFO or LIFO, will result in the highest cost of goods sold figure for January 2021?

2. 1b. Which method will result in the highest ending inventory balance?

3. 2. Compute cost of goods sold for January and the ending inventory using both the FIFO and LIFO methods.

4. 3a. Assume that inventory costs were declining during January. The inventory purchased on January 15 had a unit cost of $90, and the inventory purchased on January 21 had a unit cost of $85. All other information is the same. Which method, FIFO or LIFO, will result in the highest cost of goods sold figure for January 2021?

5. 3b. Which method will result in the highest ending inventory balance?

6. 3c. Compute cost of goods sold for January and the ending inventory using both the FIFO and LIFO methods.

Answer 1

FIFO: Under the FIFO method, it is assumed that the goods purchased first are the goods sold first. So the ending inventory would represent the goods purchased later in point of time.
LIFO: Under the LIFO method, it is assumed that the goods purchased last are the goods sold first. So the ending inventory would represent the goods which are purchased first in point of time.