Question

The following data pertains to On-Target Investment Accounting software packages in the inventory of Computer Program On-Target Outlets:

   

Inventory, January 1	190	units at $111
Purchases:
May 10	130	units at $109
August 18	200	units at $108
October 1	190	units at $109
Inventory, December 31	199	units

   

1(a)	Determine the cost of the inventory on December 31 and the cost of goods sold for the year ending on that date under the FIFO method.

  

1(b)	Determine the cost of the inventory on December 31 and the cost of goods sold for the year ending on that date under the LIFO method.

        

1(c)	Determine the unit cost, cost of the inventory on December 31 and the cost of goods sold for the year ending on that date under the average cost method. (Round "Average unit cost" answers to 2 decimal places.)

  

2.	Assume that the replacement cost of each unit on December 31 is $109.25. Using the lower of cost or market rule, find the inventory amount under each of the methods given in 1. (Round your answers to 2 decimal places.)

  

Analyze:

What is the difference between the cost and market value of the inventory using the LIFO method? (Round your answer to 2 decimal places.)

Answer 1

• All working forms part of the answer
• Sold units = opening + purchased units – ending units = 190 + 520 – 199 = 511 units
• Under FIFO, sold units are first sold from earliest purchases.
• Under LIFO, sold units are first sold from latest purchases.
• Under average method, average cost per unit is calculated and the same is multiplied by sold units and ending units to get the cost of goods sold and cost of ending inventory respectively.
• FIFO Method

FIFO	Cost of Goods available for sale			Cost of Goods Sold			Ending Inventory
	Units	Cost/unit	COG for sale $	Units sold	Cost/unit	COGS $	Units	Cost/unit	Ending inventory $
Beginning Inventory	190	111	21090	190	111	21090	0	111	0
Purchases:
May-10	130	109	14170	130	109	14170	0	109	0
Aug-18	200	108	21600	191	108	20628	9	108	972
Oct-01	190	109	20710		109	0	190	109	20710
TOTAL	710		$77570	511		$55888	199		$21682

• LIFO Method

LIFO	Cost of Goods available for sale			Cost of Goods Sold			Ending Inventory
	Units	Cost/unit	COG for sale $	Units sold	Cost/unit	COGS $	Units	Cost/unit	Ending inventory $
Beginning Inventory	190	111	21090		111	0	190	111	21090
Purchases:
May-10	130	109	14170	121	109	13189	9	109	981
Aug-18	200	108	21600	200	108	21600	0	108	0
Oct-01	190	109	20710	190	109	20710	0	109	0
TOTAL	710		$77570	511		$55499	199		$22071

• Average Method

Average Method	Cost of Goods available for sale			Cost of Goods Sold			Ending Inventory
	Units	Cost/unit	COG for sale	Units sold	Cost/unit	COGS	Units	Cost/unit	Ending inventory
Beginning Inventory	190	111	21090
Purchases:
May-10	130	109	14170
Aug-18	200	108	21600
Oct-01	190	109	20710
			0
TOTAL	710	[77570/710] 109.25	$77570	511	109.25	$55826.75	199	109.25	$21740.75

• Requirement 2

	FIFO	LIFO	Average
Cost of Ending Inventory (a)	$21682.00	$22071.00	$21740.75
Replacement cost (b)	$21740.75	$21740.75	$21740.75
Inventory amount in Balance sheet (Lower of ‘a’ and ‘b’ above)	$21682.00	$21740.75	$21740.75

* The difference between the cost and market value of the invenntory using LIFO method is $330.25 [21740.75 - 22071]