Question

Keaton Accessories uses a perpetual inventory system. The company's beginning inventory of a particular product and its purchases during the month of January were as follows: Quantity Unit Cost Total Cost Beginning Inventory (Jan. 1) 160 $40 $6,400 Purchase (Jan. 9) 80 45 3,600 Purchase (Jan. 21) 80 46 3,680 Total 320 $13,680 On January 24, Keaton sold 180 units of this product. The other 140 units remain in inventory at January 31. i.) Determine the cost of goods sold using each of the following flow assumptions: LIFO $ FIFO $ Average Cost $ ii.) Determine the cost of the 140 units in inventory at January 31 using each of the following flow assumptions: LIFO $ FIFO $ Average Cost $

Answer 1

				Part (ii)			Part (i)
		Inventory Method		Ending Inventory			Cost of Goods sold
		First-in-First-out (FIFO)		6,380			7,300
		Last-in-First-out LIFO)		6,400			7,280
		Weighted average cost		5,985			7,695
			Date	Units	Price	Amount
		Beginning Inventory	Jan 1	160	40	6,400
		Purchases	Jan 9	80	45	3,600
		Purchases	Jan 21	80	46	3,680
		Total units in Hand		320		13,680
		Sales	Jan 24	180 Units
		Closing Inventory		140	Units
		First-in-First-out (FIFO):-
		180 units sold means under this method those units will be sold at first which has been in the stock from initially, hence 160 units of Jan 1 must have been sold and 20 units of Jan 9 must have been
		Hence, Ending Inventory will be			Jan 9	60	45	2,700
						80	46	3,680
						140		6,380
		Cost of Goods Sold			Jan 1	160	40	6,400
						20	45	900
						180		7,300
		Last-in-First-out LIFO):-
		180 units sold means under this method, those units will be last sold which has been purchased at last, hence 80 units of Jan 21 and 80 units of Jan 9 must have been sold
		Hence, Ending Inventory will be			Jan 1	160	40	6,400
						160		6,400
		Cost of Merchandise Sold			Jan 9	80	45	3,600
					Jan 21	80	46	3,680
						160		7,280
		Weighted average cost:-
		Ending inventory and cost of inventory sold will be calculated using Weighted average cost
		Weighted average cost			Jan 1	160	40	6,400
					Jan 9	80	45	3,600
					Jan 21	80	46	3,680
						320		13,680
			Weighted average cost		42.75	(13,680/320)
		Hence, Ending Inventory is (140*42.75) = 5,985
		Cost of Goods Sold is (180*42.75) = 7,695