Question

The following is a record of Skysong Company’s transactions for Boston Teapots for the month of May 2020.

May 1

Balance

424 units

@

$20.00

May 10

Sale

318 units

@

$35.00

12

Purchase

636 units

@

$27.00

20

Sale

572 units

@

$35.00

28

Purchase

424 units

@

$33.00

Assuming that perpetual records are maintained and they tie into the general ledger, calculate the ending inventory using (1) FIFO and (2) LIFO.

		(1) FIFO		(2) LIFO
Ending Inventory		$		$

Answer 1

Solution :

Calculation of ending Inventory as per FIFO :

As per the First In First Out (FIFO) Method, units purchased at an earlier date are assumed to be sold first. Thus, the units available in the opening inventory and those purchased at the start of a given month are considered to be sold first.

The ending inventory shall consist of only those units that are purchased at the latest date i.e., purchased towards the end of a given month.

As per the information given in the question we have

Total number of units available for sale = Opening balance as on May 1 + Purchases made on May 12 + Purchases made on May 28

= 424 units + 636 units + 424 units = 1,484 units

Total number of units sold in the month of May = Sales made on May 10 + Sales made on May 20

= 318 units + 572 units = 890 units

Thus the ending inventory units for the month of May = Total number of units available for sale - Total number of units sold in the month of May

= 1,484 units – 890 units = 594 units

As per the FIFO assumption the ending inventory consists of those units that are purchased at the latest i.e., purchased towards the end of the month.

Thus the value of ending inventory shall be equal to

= ( 424 units * $ 33 ) + ( ( 594 – 424 ) units * $ 27 )

= ( 424 units * $ 33 ) + ( 170 units * $ 27 )

= $ 13,992 + $ 4,590 = $ 18,582

Thus the value of ending inventory as per FIFO = $ 18,582

Calculation of ending Inventory as per LIFO :

As per the Last in First Out (LIFO) Method, units purchased at a latest date are assumed to be sold first. Thus, units that are purchased at the latest date i.e., purchased towards the end of a given month are considered to be sold first.

The ending inventory will therefore consist of the opening inventory and those units purchased at the start of a given month.

As per the information given in the question we have

Total number of units available for sale = Opening balance as on May 1 + Purchases made on May 12 + Purchases made on May 28

= 424 units + 636 units + 424 units = 1,484 units

Total number of units sold in the month of May = Sales made on May 10 + Sales made on May 20

= 318 units + 572 units = 890 units

Thus the ending inventory units for the month of May = Total number of units available for sale - Total number of units sold in the month of May

= 1,484 units – 890 units = 594 units

As per the LIFO assumption the ending inventory consists of the opening inventory and those units purchased at the start of a given month.

Thus the value of ending inventory shall be equal to

= ( 424 units * $ 20 ) + ( ( 594 – 424 ) units * $ 27 )

= ( 424 units * $ 20 ) + ( 170 units * $ 27 )

= $ 8,480 + $ 4,590 = $ 13,070

Thus the value of ending inventory as per LIFO = $ 13,070