Question

Inventory Costing Methods

Morrison Inc. reported the following information for the month of October:

Inventory, October 1		58 units @ $22
Purchase:
October 7		57 units @ $23
October 18		58 units @ $24
October 27		46 units @ $25

During October, Morrison sold 138 units. The company uses a periodic inventory system.

Required:

What is the value of ending inventory and cost of goods sold for October under the following assumptions.

ASSUMPTIONS:

1. Of the 138 units sold, 49 cost $22, 40 cost $23, 44 cost $24, and 5 cost $25.

2. FIFO

3. LIFO

4. Weighted average method (Round average unit cost to the nearest cent, and round all other calculations and your final answers to the nearest dollar.)

Answer with $

1. Cost of Goods Sold=

Ending Inventory=

2. Cost of Goods Sold=

Ending Inventory=

3. Cost of Goods Sold=

Ending Inventory=

4. Cost of Goods Sold=

Ending Inventory=

Answer 1

Answer 1)

Calculation of value of ending inventory and Cost of Goods Sold under specific Identification Method

In the given situation, the question has specified the cost of 138 units sold and the same can be calculated as follows:

Calculation of Cost of Goods Sold:

Particulars	Number of Units Sold	Cost Per unit (In $)	Total Cost (in $)
Inventory on October 1	49	22	1,078
Purchased on October 7	40	23	920
Purchased on October 18	44	24	1,056
Purchased on October 27	5	25	125
Total	138		3,179

Therefore the cost of Goods Sold (138 units) is $ 3,179.

Calculation of Value of Ending Inventory:

Particulars	Number of Units Purchased/ Held in opening inventory (A)	Number of Units Sold (B)	Balance units in Ending Inventory (A-B)	Cost Per unit (In $)	Total Cost (in $)
Inventory on October 1	58	49	9	22	198
Purchased on October 7	57	40	17	23	391
Purchased on October 18	58	44	14	24	336
Purchased on October 27	46	5	41	25	1,025
Total	219	138	81		1,950

Therefore the value of 81 units in ending inventory is $ 1,950.

Answer 2)

Calculation of value of ending inventory and Cost of Goods Sold under FIFO Method

Under FIFO method, while calculating the Cost of Goods sold and value of ending inventory, it is assumed that the units of inventory which are first bought will be sold first and so on. Hence, the ending inventory will be from the latest purchases and moving backwards.

Calculation of Cost of Goods Sold:

Particulars	Number of Units Sold	Cost Per unit (In $)	Total Cost (in $)
Inventory on October 1	58	22	1,276
Purchased on October 7	57	23	1,311
Purchased on October 18	23	24	552
Total	138		3,139

Therefore the cost of Goods Sold under FIFO method (138 units) is $ 3,139.

Calculation of Value of Ending Inventory:

Particulars	Number of in Balance Inventory	Cost Per unit (In $)	Total Cost (in $)
Purchased on October 18	35	24	840
Purchased on October 27	46	25	1,150
Total	81		1,990

Therefore the value of 81 units in ending inventory under FIFO method is $ 1,990.

Answer 3)

Calculation of value of ending inventory and Cost of Goods Sold under LIFO Method

Under LIFO method, while calculating the Cost of Goods sold and value of ending inventory, it is assumed that the units of inventory which are latest bought will be sold first and moving backwards. Hence, the ending inventory will be from the earliest purchases and so on.

Calculation of Cost of Goods Sold:

Particulars	Number of Units Sold	Cost Per unit (In $)	Total Cost (in $)
Purchased on October 27	46	25	1,150
Purchased on October 18	58	24	1,392
Purchased on October 7	34	23	782
Total	138		3,324

Therefore the cost of Goods Sold under LIFO method (138 units) is $ 3,324.

Calculation of Value of Ending Inventory:

Particulars	Number of Units in Balance Inventory	Cost Per unit (In $)	Total Cost (in $)
Inventory Balance October 1	58	22	1,276
Purchased on October 7	23	23	529
Total	81		1,805

Therefore the value of 81 units in ending inventory under LIFO method is $ 1,805.

Answer 4)

Calculation of value of ending inventory and Cost of Goods Sold under Weighted Average Method

Under Weighted Average method, Cost of Goods Sold and value of ending inventory is calculated by multiplying the units sold and units in balance inventory by weighted average cost.

The said weighted average cost is calculated by dividing the aggregate cost of units in opening inventory and cost of units purchased during the period by the aggregate number of units in opening inventory and number of units purchased during the period.

Calculation of Weighted Average cost

Particulars	Number of Units Purchase/ Balance in opening inventory	Cost Per unit (In $)	Total Cost (in $)
Inventory Balance October 1	58	22	1,276
Purchased on October 7	57	23	1,311
Purchased on October 18	58	24	1,392
Purchased on October 27	46	25	1,150
Total	219		5,129

Weighted Average Cost = $ 5,129/ 219 units

                                           = $ 23.42 per unit   

Therefore, the weighted average cost is $ 23.42 per unit

Calculation of Cost of Goods Sold:

Cost of Goods Sold = Number of units sold X weighted average cost per unit

                                    = 138 units X $ 23.42

                                    = $ 3,232 (rounded off)

Therefore the cost of Goods Sold under weighted average cost method (138 units) is $ 3,232.

Calculation of Value of Ending Inventory:

Cost of Goods Sold = Number of units in ending inventory X weighted average cost per unit

                                    = 81 units X $ 23.42

                                    = $ 1,897 (rounded off)

Therefore the value of 81 units in ending inventory under weighted average cost method is $ 1,897.