Question

Company imports and sells bottles. At the beginning of the year 2018, the company had 900 bottles and the cost of goods was 2.700.000. The company does not use a perpetual inventory system.

		Purchase		Sale
		Quantity	Price/unit	Quantity	Price/unit
February	Purchase	600	3.100
Mars	Sale			700	8.000
May	Purchase	1.600	3.400
June	Sale			900	9.500
July	Sale			700	9.500
September	Sale			600	9.800
October	Purchase	500	3.500

A) Calculate the cost of ending inventory using FIFO, LIFO and weighted-average method.

B) What is the cost of goods sold for all three methods?

C) Which method gives the highest net income?

Answer 1

A) & B)
FIFO

FIFO	Cost of Goods Available for Sale			Cost of Goods Sold			Inventory on hand
Activity	Units	Unit Price	Amount	Units	Unit Price	Amount	Units	Unit Price	Amount
Beginning Inventory	900	$               3.00	$            2,700	900	$         3.00	$            2,700
Purchases
February	600	$               3.10	$            1,860	600	$         3.10	$            1,860
May	1600	$               3.40	$            5,440	1400	$         3.40	$            4,760	200	$         3.40	$              680
October	500	$               3.50	$            1,750				500	$         3.50	$           1,750
Total	3600		$         11,750	2900		$            9,320	700		$          2,430

LIFO

LIFO	Cost of Goods Available for Sale			Cost of Goods Sold			Inventory on hand
Activity	Units	Unit Price	Amount	Units	Unit Price	Amount	Units	Unit Price	Amount
Beginning Inventory	900	$               3.00	$            2,700	200	$         3.00	$               600	700	$         3.00	$           2,100
Purchases
February	600	$               3.10	$            1,860	600	$         3.10	$            1,860
May	1600	$               3.40	$            5,440	1600	$         3.40	$            5,440
October	500	$               3.50	$            1,750	500	$         3.50	$            1,750
Total	3600		$         11,750	2900		$            9,650	700		$          2,100

Weighted Average

Average Cost	Cost of Goods Available for Sale			Cost of Goods Sold			Inventory on hand
Activity	Units	Unit Price	Amount	Units	Unit Price	Amount	Units	Unit Price	Amount
Beginning Inventory	900	$               3.00	$            2,700
Purchases
February	600	$               3.10	$            1,860
May	1600	$               3.40	$            5,440
October	500	$               3.50	$            1,750
Total	3600	$               3.26	$         11,750	2900	$         3.26	$            9,465	700	$         3.26	$          2,285

C) FIFO method gives highest net income, since it has lowest cost of goods sold.