Question

The following information is available for Harold Company:

Beginning inventory                500 units at $5

First purchase                         900 units at $6

Second purchase                    600 units at $7

Assume that Harold uses a periodic inventory system and that there are 750 units left at the end of the month.

Instructions

Compute the cost of goods sold under the

LIFO

FIFO

Average Cost

Enter calculation and answer below.

Answer 1

Cost of goods sold under the LIFO                   [Working note 2]	$8,100
Cost of goods sold under the FIFO                   [Working note 3]	$7,000
Cost of goods sold under the Average Cost    [Working note 4]	$7,562.50

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Working note 1 - Calculation of number of units sold
Beginning inventory	500
Add: Purchases         [First purchase + Second purchase = 900 + 600]	1,500
Less: Ending inventory	750
Units sold	1,250

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Under First in First out (LIFO), units that were purchased last (newer units) will be sold first.

Working note 2 - Cost of Goods Sold under LIFO
	Units (a)	Unit Cost (b)	Total Cost (a x b)
Second purchase	600	$7	$4,200
First purchase	650	$6	$3,900
Total	1,250		$8,100

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Under First in First out (FIFO), units that were purchased first (older units) will be sold first.

Working note 3 - Cost of Goods Sold under FIFO
	Units (a)	Unit Cost (b)	Total Cost (a x b)
Beginning inventory	500	$5	$2,500
First purchase	750	$6	$4,500
Total	1,250		$7,000

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Working note 4 - Cost of Goods Sold under Average Cost
Units sold                      [Refer working note 1]                  (a)	1,250
Average-cost per unit    [Refer working note 5]                   (b)	$6.05
Cost of Goods Sold                                                               (a x b)	$7,562.50

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Working Note 5 - Calculation of average cost per unit
Cost of units available for sale              [Refer working note 6]            (a)	$12,100
Number of units available for sale        [Refer working note 6]            (b)	2,000
Average cost per unit                                                                             (a / b)	$6.05

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Working Note 6 - Calculation of cost of units available for sale
Particulars	Units available for sale (a)	Unit cost (b)	Cost of units available for sale (a x b)
Beginning Inventory	500	$5	$2,500
Add: Purchases
First purchase	900	$6	$5,400
Second purchase	600	$7	$4,200
Total	2,000		$12,100