Question

Aranas Manufacturing, a tool retailer, began year 20x7 with 21,500 units of product in its January 1 inventory, at a cost of $12.50 for each unit. It made successive purchases of its product in year 20x7, as follows. The company uses a periodic inventory system. On December 31, 20x7, a physical count reveals that 35,000 units of its product remain in inventory. Mar. 7 25,000 units @ $16 each May 25 41,500 units @ $19 each Aug. 1 22,750 units @ $23 each Nov. 10 38,100 units @ $24 each Instructions Using the template provided below. Compute the amounts assigned to the 20x7 ending inventory, and the cost of goods sold for FIFO, LIFO, and weighted average.

	Units	Cost	Total
Beginning	21,500	12.5	268750
Purchases:
March 7	25000	16	400000
May 25	41500	19	788500
August 1	22750	23	523250
November10	38100	24	914400
Units available for sale	148,850		$        2,894,900.00
Ending units	Unit Cost	FIFO	LIFO	Weighted Average
Comparative Income Statement		FIFO	LIFO	Weighted Average
Sales
Cost of goods sold
Gross Profit

Answer 1

Units available for sale	148,850
Units remaining in inventory at the end	35,000
Units sold	113,850

Under FIFO, Goods purchased in the order of earliest are accounted for sales. It assumes that the First inventories bought are to be sold first.

Under FIFO
Units	Units for cost assignment remaining
Date	No. of units sold from the batch	Rate	Cost $	113850
Beginning	21,500	12.5	268750	92,350
7-Mar	25000	16	400000	67,350
25-May	41500	19	788500	25,850
1-Aug	22750	23	523250	3,100
10-Nov	3100	24	74400	0
Cost of goods sold	113,850		2,054,900

COGS under the First-in first-out cost method is $ 2,054,900

Cost of ending inventory = 2,894,900 - 2,054,900 = $840,000

The unit cost of which is equal to the unit price of the last purchase.

Under LIFO, Goods purchased in the order of the latest are accounted for sales. It assumes that the Last inventories bought are to be sold first.

Under LIFO
Units	Units for cost assignment remaining
Date	No. of units sold from the batch	Rate	Cost $	113850
10-Nov	38100	24	914400	75,750
1-Aug	22750	23	523250	53,000
25-May	41500	19	788500	11,500
7-Mar	11500	16	184000	0
Beginning	0	12.5	0	0
Cost of goods sold			2,410,150

COGS under the last in first out cost method is $ 2,410,150

Cost of ending inventory = 2,894,900 - 2,410,150 = $484,750

The unit cost of which is equal to the unit price of both beginning inventory and first purchase (21,500*12.50+13,500*16)

Under the Weighted average cost method, the total cost of available goods is divided by the total number of available units to find out the weighted average cost per unit which is used in determining the cost of goods sold and inventory valuation.

Under the Weighted Average Method:
Units available for sale				148,850
Total Cost				2,894,900
Unit Cost (Total Cost / No. of Units)		=		2894900/148850
=				19.448438
Units sold				113,850
Cost of goods sold=				113850*19.448438
=				2,214,205

COGS under the weighted average cost method is $ 2,214,205

Cost of ending inventory = 2,894,900 - 2,214,205 = $680,195