Question

The records at the end of January of the current year for Young Company showed the following for a particular kind of merchandise: Beginning Inventory at FIFO: 14 Units @ $16 = $224 Beginning Inventory at LIFO: 14 Units @ $12 = $168 Transactions Units Unit Cost Total Cost Purchase, January 9 28 $ 14 $ 392 Purchase, January 20 54 19 1,026 Sale, January 21 (at $42 per unit) 37 Sale, January 27 (at $43 per unit) 27 1. Compute the inventory turnover ratio for the month of January under the FIFO and LIFO inventory costing methods.

Answer 1

FIFO:

Beginning inventory = 14 units @ $16.00 per unit
Beginning inventory = $224

Purchases = 28 units @ $14.00 per unit + 54 units @ $19.00 per unit
Purchases = $392 + $1,026
Purchases = $1,418

Cost of goods available for sale = Beginning inventory + Purchases
Cost of goods available for sale = $224 + $1,418
Cost of goods available for sale = $1,642

Number of units sold = 37 + 27
Number of units sold = 64

Cost of goods sold = 14 * $16.00 + 28 * $14.00 + 22 * $19.00
Cost of goods sold = $1,034

Ending inventory = Cost of goods available for sale - Cost of goods sold
Ending inventory = $1,642 - $1,034
Ending inventory = $608

Average inventory = (Ending inventory + Beginning inventory) / 2
Average inventory = ($608 + $224) / 2
Average inventory = $416

Inventory turnover = Cost of goods sold / Average inventory
Inventory turnover = $1,034 / $416
Inventory turnover = 2.49 times

LIFO:

Beginning inventory = 14 units @ $12.00 per unit
Beginning inventory = $168

Purchases = 28 units @ $14.00 per unit + 54 units @ $19.00 per unit
Purchases = $392 + $1,026
Purchases = $1,418

Cost of goods available for sale = Beginning inventory + Purchases
Cost of goods available for sale = $168 + $1,418
Cost of goods available for sale = $1,586

Number of units sold = 37 + 27
Number of units sold = 64

Cost of goods sold = 54 * $19.00 + 10 * $14.00
Cost of goods sold = $1,166

Ending inventory = Cost of goods available for sale - Cost of goods sold
Ending inventory = $1,586 - $1,166
Ending inventory = $420

Average inventory = (Ending inventory + Beginning inventory) / 2
Average inventory = ($420 + $168) / 2
Average inventory = $294

Inventory turnover = Cost of goods sold / Average inventory
Inventory turnover = $1,166 / $294
Inventory turnover = 3.97 times