Question

Alta Ski Company's inventory records contained the following information regarding its latest ski model. The company uses a periodic inventory system.

Beginning inventory, January 1, 2021	850	units @ $95 each
Purchases:
January 15	1,800	units @ $110 each
January 21	1,600	units @ $115 each
Sales:
January 5	800	units @ $135 each
January 22	1,200	units @ $145 each
January 29	650	units @ $150 each
Ending inventory, January 31, 2021	1,600	units

Required:

1. 1a. Which method, FIFO or LIFO, will result in the highest cost of goods sold figure for January 2021?

2. 1b. Which method will result in the highest ending inventory balance?

3. 2. Compute cost of goods sold for January and the ending inventory using both the FIFO and LIFO methods.

4. 3a. Assume that inventory costs were declining during January. The inventory purchased on January 15 had a unit cost of $85, and the inventory purchased on January 21 had a unit cost of $80. All other information is the same. Which method, FIFO or LIFO, will result in the highest cost of goods sold figure for January 2021?

5. 3b. Which method will result in the highest ending inventory balance?

6. 3c. Compute cost of goods sold for January and the ending inventory using both the FIFO and LIFO methods.

Answer 1

Correct Answer:

Requirement 1A: LIFO method will result in highest cost of goods sold.

Requirement 1B: FIFO method will result in highest ending inventory.

Requirement 2:

	FIFO	LIFO
Cost of Goods Sold	$               2,78,750	$               2,99,500
Ending Inventory	$         1,84,000.00	$         1,63,250.00

Working:

Cost of Goods Available for sale
		Units	Cost per unit	value
Beginning Inventory		850	$                     95.00	$                 80,750.00
Purchases		1800	$                  110.00	$             1,98,000.00
Purchases		1600	$                  115.00	$             1,84,000.00
Total		4250		$             4,62,750.00

	FIFO
A	Total Units Available for sale			4250		$            4,62,750
	Units Sold			2650
	Ending Inventory Units			1600
	Valuation
	Cost of Goods Sold		850		$                         95.00	$         80,750.00
			1800		$                       110.00	$            1,98,000
B	Cost of Goods Sold		2650	units		$            2,78,750
A-B	Ending Inventory		1600	units		$        1,84,000.0

	LIFO
A	Total Units Available for sale			4250		$            4,62,750
	Units Sold			2650
	Ending Inventory Units			1600
	Valuation
	Cost of Goods Sold		1600		$                       115.00	1,84,000.00
			1050		$                       110.00	1,15,500.00
B	Cost of Goods Sold		2650	units		$      2,99,500.00
A-B	Ending Inventory		1600	units		$      1,63,250.00

Requirement 3A: FIFO Method will result in highest cost of goods sold.

Requirement 3B: LIFO method will result in highest Ending Inventory Balance.

Requirement 3C:

	FIFO	LIFO
Cost of Goods Sold	$           2,33,750.0	$           2,17,250.0
Ending Inventory	$           1,28,000.0	$           1,44,500.0

Working:

Cost of Goods Available for sale
		Units	Cost per unit	value
Beginning Inventory		850	$                       95.0	$                   80,750.0
Purchases		1800	$                       85.0	$               1,53,000.0
Purchases		1600	$                       80.0	$               1,28,000.0
Total		4250		$               3,61,750.0

		FIFO
A		Total Units Available for sale					4250		$            3,61,750
		Units Sold					2650
		Ending Inventory Units					1600
		Valuation
		Cost of Goods Sold			850			$                         95.00	$         80,750.00
					1800			$                         85.00	$            1,53,000
B		Cost of Goods Sold			2650		units		$            2,33,750
A-B		Ending Inventory			1600		units		$        1,28,000.0
	LIFO
A	Total Units Available for sale					4250			$            3,61,750
	Units Sold					2650
	Ending Inventory Units					1600
	Valuation
	Cost of Goods Sold			1600				$                         80.00	1,28,000.00
				1050				$                         85.00	89,250.00
B	Cost of Goods Sold			2650		units			$      2,17,250.00
A-B	Ending Inventory			1600		units			$      1,44,500.00

End of answer.

Thanks.