Question

Ziad Company had a beginning inventory on January 1 of 143 units of Product 4-18-15 at a cost of $20 per unit. During the year, the following purchases were made.

Mar. 15

380 units

at

$23

Sept. 4

333 units

at

$26

July 20

238 units

at

$24

Dec. 2

95 units

at

$29

950 units were sold. Ziad Company uses a periodic inventory system.

a) Determine the cost of goods available for sale.

b) Calculate average cost per unit.

c) Determine the ending inventory and the cost of goods sold under each of the assumed cost flow methods.

d) Which cost flow method results in the highest inventory amount for the balance sheet, and the highest cost of goods sold for the income statement?

Answer 1

Solution a:

Particulars	Cost of goods available for sale
	Nos of units	Unit Cost	Cost of goods available for sale
Beginning inventory	143	$20.00	$2,860
Purchases:
15-Mar	380	$23.00	$8,740
20-Jul	238	$24.00	$5,712
4-Sep	333	$26.00	$8,658
2-Dec	95	$29.00	$2,755
Total	1189		$28,725

Solution b:

Average cost per unit = Total Cost / Total Units = $28725 / 1189 = $24.159 (rounded to 3 decimal places)

Solution c:

Computation of COGS and ending inventory - Periodic FIFO
Particulars	Cost of goods available for sale			Cost of goods sold			Ending Inventory
	Nos of units	Unit Cost	Cost of goods available for sale	Nos of units sold	Unit Cost	Cost of goods sold	Nos of units in ending inventory	Unit Cost	Ending inventory
Beginning inventory	143	$20.00	$2,860	143	$20.00	$2,860.00	0	$20.00	$0.00
Purchases:
15-Mar	380	$23.00	$8,740	380	$23.00	$8,740.00	0	$23.00	$0.00
20-Jul	238	$24.00	$5,712	238	$24.00	$5,712.00	0	$24.00	$0.00
4-Sep	333	$26.00	$8,658	189	$26.00	$4,914.00	144	$26.00	$3,744.00
2-Dec	95	$29.00	$2,755				95	$29.00	$2,755.00
Total	1189		$28,725	950		$22,226.00	239		$6,499.00

Computation of COGS and ending inventory - Periodic LIFO
Particulars	Cost of goods available for sale			Cost of goods sold			Ending Inventory
	Nos of units	Unit Cost	Cost of goods available for sale	Nos of units sold	Unit Cost	Cost of goods sold	Nos of units in ending inventory	Unit Cost	Ending inventory
Beginning inventory	143	$20.00	$2,860				143	$20.00	$2,860.00
Purchases:
5-Mar	380	$23.00	$8,740	284	$23.00	$6,532	96	$23.00	$2,208.00
13-Mar	238	$24.00	$5,712	238	$24.00	$5,712
21-Mar	333	$26.00	$8,658	333	$26.00	$8,658
26-Mar	95	$29.00	$2,755	95	$29.00	$2,755
Total	1189		$28,725	950		$23,657.00	239		$5,068.00

Computation of COGS and ending inventory - Periodic Average cost method
Particulars	Cost of goods available for sale			Cost of goods sold - Average cost			Ending Inventory - Average cost
	Nos of units	Unit Cost	Cost of goods available for sale	Nos of units sold	Unit Cost	Cost of goods sold	Nos of units in ending inventory	Unit Cost	Ending inventory
Beginning inventory	143	$20.00	$2,860
Purchases:
15-Mar	380	$23.00	$8,740
20-Jul	238	$24.00	$5,712
4-Sep	333	$26.00	$8,658
2-Dec	95	$29.00	$2,755
Total/ average	1189	$24.159	$28,725.00	950	$24.159	$22,951.01	239	$24.159	$5,773.99

Solution d:

FIFO method results in highest Invemtory amount i.e. $6,499

LIFO method results im highest cost of goods sold i.e. $23,657