In: Accounting
Perpetual Inventory Using FIFO
Beginning inventory, purchases, and sales data for DVD players are as follows:
November 1 | Inventory | 79 units at $47 | |
10 | Sale | 63 units | |
15 | Purchase | 42 units at $50 | |
20 | Sale | 22 units | |
24 | Sale | 18 units | |
30 | Purchase | 20 units at $52 |
The business maintains a perpetual inventory system, costing by the first-in, first-out method.
a. Determine the cost of the goods sold for each sale and the inventory balance after each sale, presenting the data in the form illustrated in Exhibit 3. Under FIFO, if units are in inventory at two different costs, enter the units with the LOWER unit cost first in the Cost of Goods Sold Unit Cost column and in the Inventory Unit Cost column.
Cost of the Goods Sold Schedule | |||||||||
First-in, First-out Method | |||||||||
DVD Players | |||||||||
Date | Quantity Purchased | Purchases Unit Cost | Purchases Total Cost | Quantity Sold | Cost of Goods Sold Unit Cost | Cost of Goods Sold Total Cost | Inventory Quantity | Inventory Unit Cost | Inventory Total Cost |
Nov. 1 | $ | $ | |||||||
Nov. 10 | $ | $ | |||||||
Nov. 15 | $ | $ | |||||||
Nov. 20 | |||||||||
Nov. 24 | |||||||||
Nov. 30 | |||||||||
Nov. 30 | Balances | $ | $ |
b. Based upon the preceding data, would you
expect the inventory to be higher or lower using the last-in,
first-out method?
a) Cost of the goods sold schedule
First-in, First-out Method
DVD Players
Date | Quantity Purchased (1) | Purchases Unit Cost (2) | Purchases Total Cost (1*2) | Quantity Sold (3) | Cost of Goods Sold Unit Cost (4) | Cost of Goods Sold Total Cost (3*4) | Inventory Quantity (5) | Inventory Unit Cost (6) | Inventory Total Cost (5*6) |
Nov. 1 | 79 units | $47 | $3,713 | ||||||
Nov. 10 | 63 units | $47 | $2,961 | 16 units (79-63) | $47 | $752 | |||
Nov. 15 | 42 units | $50 | $2,100 | 16 units | $47 | $752 | |||
42 units | $50 | $2,100 | |||||||
Nov. 20 | 16 units | $47 | $752 | 36 units (42-6) | $50 | $1,800 | |||
6 units (22-16) | $50 | $300 | |||||||
Nov. 24 | 18 units | $50 | $900 | 18 units (36-18) | $50 | $900 | |||
Nov. 30 | 20 units | $52 | $1,040 | 18 units | $50 | $900 | |||
20 units | $52 | $1,040 | |||||||
Nov. 30 | Balances | 103 units | $4,913 | 38 units | $1,940 |
Thus under FIFO method, total cost of good sold for 103 units will be $4,913 and Ending Inventory of 38 units will be values at $1,940.
b) As the prices are increasing, the ending inventory under LIFO will be valued at old prices which are lower as compared to current prices. Therefore the inventory is expected to be lower using the last-in, first-out method.