Question

Periodic inventory by three methods

The units of an item available for sale during the year were as follows:

Jan.	1		Inventory	2,900 units at $7
Feb.	17		Purchase	2,800 units at $9
Jul.	21		Purchase	2,700 units at $11
Nov.	23		Purchase	1,600 units at $13

There are 1,900 units of the item in the physical inventory at December 31. The periodic inventory system is used. This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below.

1. Determine the inventory cost by the first-in, first-out method. Round your answer to the nearest dollar.

   $  

2. Determine the inventory cost by the last-in, first-out method. Round your answer to the nearest dollar.

   $  

3. Determine the inventory cost by the weighted average cost method. Round your answer to the nearest dollar.

   $  

Answer 1

Answer (a)

Calculation of Cost of Inventory by FIFO Method

Date	Particulars	Units	Rate per unit (in $)	Cost (in $)
July'21	Purchase	300	11	3,300
Nov'23	Purchase	1,600	13	20,800
Total		1,900		24,100

Under FIFO method, inventory is valued starting from the latest units bought and moving backwards.

The cost of 1,900 units of closing inventory under FIFO method is $ 24,100. This inventory will be from 300 units purchased on 21^st July at $ 11 per unit and 1600 units purchased on 23^rd November at $ 13 per unit.

Answer (b)

Calculation of Cost of Inventory by LIFO Method

Date	Particulars	Units	Rate per unit (in $)	Cost (in $)
Jan'1	Inventory	1,900	7	13,300
Total		1,900		13,300

Under LIFO method, inventory is valued starting from the units which were bought at the earliest and moving forwards.

The cost of 1,900 units of closing inventory under LIFO method is $ 13,300. This inventory will be from opening inventory of 2,900 units bought at $ 7 per unit.

Answer (c)

Calculation of Cost of Inventory by Weighted average cost method

Date	Particulars	Units	Rate per unit (in $)	Cost (in $)
Jan'1	Inventory	2,900	7	20,300
Feb'17	Purchase	2,800	9	25,200
Jul'21	Purchase	2,700	11	29,700
Nov'23	Purchase	1,600	13	20,800
Total		10,000		96,000

Under weighted average cost method, inventory is valued by multiplying the closing inventory by the weighted average price.

The formula for weighted average price is:

= (Total cost of inventory in the beginning of the period + Total cost of inventory bought during the period) (Total number of units in inventory in the beginning of the period + Total number of units bought during the period)

= $ 96,000/ 10,000 units

= $ 9.60 per unit

Cost of closing inventory = 1,900 units X $ 9.60 per unit

                                            = $ 18,240

The cost of 1,900 units of closing inventory under weighted average cost method is $ 18,240