Question

Based on the information below what would the ending inventory and the cost of goods sold be for Gargleblaster Inc (GI) under the following cost flow assumptions?

Ending Inventory                  Cost of Goods Sold

1.         LIFO(periodic inventory method) $ $                                                    

                  2.         FIFO(periodic inventory method) $                                                                      $                                                    

                  3.         LIFO (perpetual inventory method) $                                                                   $                                                    

                  4.         FIFO(perpetual inventory method) $                                                                    $                                                                                                          

  Quantity   Cost per Unit                 Total

            Beginning Inventory 200 units         $10 2,000

            January Purchases 300 units         $12 3,600

            March Purchases 500 units         $15 7,500

            August Purchases 500 units         $15 7,500

            December Purchases 200 units         $20 4,000

1,700 units                                          24,600

There were 1,200 units sold during the year, half in May, and the others in September. No units were lost, stolen, or spoiled.

Answer 1

Solution:

Periodic Inventory System

Periodic Inventory system is a system of inventory in which inventories are updated on a periodic basis. Periodic basis may be monthly, quarterly, weekly, half yearly or yearly. In this system, inventories are not kept up to date.

Part 1 --- Last in First Out (LIFO) - Periodic

LIFO method says the newest units in stock are issued or sold first.

Hence, the recently purchased units are sold first.

LIFO - Periodic method	Units	$/Unit	$$
Beginning Inventory	200	$10.00	$2,000
Purchases
January	300	$12.00	$3,600
March	500	$15.00	$7,500
August	500	$15.00	$7,500
December	200	$20.00	$4,000
Cost of Goods Available for Sale (A)	1700		$24,600
Cost of Goods Sold:
Units Sold from Beginning Inventory	0	$10.00	$0
Units Sold from Purchases January	0	$12.00	$0
Units Sold from Purchases March	500	$15.00	$7,500
Units Sold from Purchases August	500	$15.00	$7,500
Units Sold from Purchases December	200	$20.00	$4,000
Total Cost of Goods Sold (B)	1200		$19,000
Ending Inventory (A - B)	500		$5,600

Cost of Goods Sold LIFO - Periodic = $19,000

Ending Inventory LIFO – Periodic = $5,600

Part 2 -- FIFO Periodic Method

FIFO method says the oldest units in stock are issued or sold first.

FIFO - Periodic method	Units	$/Unit	$$
Beginning Inventory	200	$10.00	$2,000
Purchases
January	300	$12.00	$3,600
March	500	$15.00	$7,500
August	500	$15.00	$7,500
December	200	$20.00	$4,000
Cost of Goods Available for Sale (A)	1700		$24,600
Cost of Goods Sold:
Units Sold from Beginning Inventory	200	$10.00	$2,000
Units Sold from Purchases January	300	$12.00	$3,600
Units Sold from Purchases March	500	$15.00	$7,500
Units Sold from Purchases August	200	$15.00	$3,000
Units Sold from Purchases December	0	$20.00	$0
Total Cost of Goods Sold (B)	1200		$16,100
Ending Inventory (A - B)	500		$8,500

Cost of Ending Inventory FIFO – Periodic = $16,100

Cost of Goods Sold FIFO – Periodic = $8,500

Part 3 – LIFO (perpetual inventory method)

Under perpetual system, inventory is updated after each transaction whether sale or purchase of units.

Perpetual LIFO:	Goods Purchased			Cost of Goods Sold			Inventory Balance
	# of units	Unit Cost	Cost per unit	# of units	Cost per unit	Cost of goods sold	# of units	Cost per unit	Inventory Balance
Beginning Inventory							200	$10	$2,000
January Purchases	300	$12	$3,600				200	$10	$2,000
							300	$12	$3,600
							500		$5,600
March Purchases	500	$15	$7,500				200	$10	$2,000
							300	$12	$3,600
							500	$15	$7,500
							1000		$13,100
Sales May				500	$15	$7,500	200	$10	$2,000
				100	$12	$1,200	200	$12	$2,400
				600		$8,700	400		$4,400
August Purchases	500	$15	$7,500				200	$10	$2,000
							200	$12	$2,400
							500	$15	$7,500
							900		$11,900
December Purchases	200	$20	$4,000				200	$10	$2,000
							200	$12	$2,400
							500	$15	$7,500
							200	$20	$4,000
							1100		$15,900
Sales December				200	$20	$4,000	200	10	$2,000
				400	$15	$6,000	200	12	$2,400
				600		$10,000	100	15	$1,500
							500		$5,900
TOTAL				1200		$18,700

Cost of Goods Sold LIFO – Perpetual = $18,700

Ending Inventory LIFO – Perpetual = $5,900

Part 4 – FIFO (perpetual inventory method)

Perpetual FIFO:	Goods Purchased			Cost of Goods Sold			Inventory Balance
	# of units	Unit Cost	Cost per unit	# of units	Cost per unit	Cost of goods sold	# of units	Cost per unit	Inventory Balance
Beginning Inventory							200	$10	$2,000
January Purchases	300	$12	$3,600				200	$10	$2,000
							300	$12	$3,600
							500		$5,600
March Purchases	500	$15	$7,500				200	$10	$2,000
							300	$12	$3,600
							500	$15	$7,500
							1000		$13,100
Sales May				200	$10	$2,000
				300	$12	$3,600
				100	$15	$1,500	400	$15	$6,000
				600		$7,100
August Purchases	500	$15	$7,500				400	$15	$6,000
							500	$15	$7,500
							900		$13,500
December Purchases	200	$20	$4,000				400	$15	$6,000
							500	$15	$7,500
							200	$20	$4,000
							1100		$17,500
Sales December				400	$15	$6,000
				200	$15	$3,000	300	$15	$4,500
				600		$9,000	200	$20	$4,000
							500		$8,500
TOTAL				1200		$16,100

Cost of Goods Sold FIFO – Perpetual = $16,100

Ending Inventory FIFO – Perpetual = $8,500

Summary of answers as follows:

		Cost of Goods Sold	Ending Inventory
1)	LIFO - Periodic	$19,000	$5,600
2)	FIFO - Periodic	$16,100	$8,500
3)	LIFO - Perpetual	$18,700	$5,900
4)	FIFO - Perpetual	$16,100	$8,500