Question

Inventory Costing Methods—Periodic System

The following information is available concerning the inventory of Carter Inc.:

	Units	Unit Cost
Beginning inventory	198	$12
Purchases:
March 5	295	13
June 12	403	14
August 23	245	15
October 2	150	17

During the year, Carter sold 1,002 units. It uses a periodic inventory system.

Required:

1. Calculate ending inventory and cost of goods sold for each of the following three methods:

In your calculations round average unit cost to the nearest cent, and round all other calculations and your final answers to the nearest dollar.

Cost Flow Assumption	Ending Inventory	Cost of Goods Sold
a. Weighted average	$	$
b. FIFO	$	$
c. LIFO	$	$

2. Assume an estimated tax rate of 30%. How much more or less (indicate which) will Carter pay in taxes by using FIFO instead of LIFO?

Difference in taxes under FIFO vs. LIFO

Answer 1

	Units	Unit cost	Total cost
Beginning inventory	198	12	2376
March 5	295	13	3835
June 12	403	14	5642
August 23	245	15	3675
October 2	150	17	2550
Total	1291		18078
Average cost	14.00	=18078/1291
Ending Inventory units	289	=1291-1002
a. Weighted average:
Ending Inventory	4046 or 4047	=289*14
Cost of Goods Sold	14032 or 14031	=18078-4046
b. FIFO
Ending Inventory	4635	=(150*17)+(289-150)*15
Cost of Goods Sold	13443	=18078-4635
c. LIFO
Ending Inventory	3559	=(198*12)+(289-198)*13
Cost of Goods Sold	14519	=18078-3559
2
Difference in net income	1076	=14519-13443
X Tax rate	30%
Difference in taxes under FIFO vs. LIFO	322.80 or 329	more