Question

GGG uses a perpetual inventory system. The company’s beginning inventory of a particular product and its purchases during the months of January and February were as follows:

                                                                                        Quantity                             Unit Cost   

Beginning inventory (Jan. 1)................................................. 50                                         $6.00       

Purchase (Jan. 10)................................................................. 25                                           7.00       

Purchase (Jan. 22)................................................................. 25                                           8.52          

Purchase (Feb. 9)…………………………………………              65                                    11.00       

     Total     ...............................................................................                                                  

On February 25, GGG sells 65 units of this product. The other units remain in inventory at February 25.

a       Determine the cost of goods sold using each of the following flow assumption. SHOW ALL WORK!

         (1) LIFO                                                                                                $_____________

         (2) FIFO                                                                                                $_____________

         (3) Average cost                                                                                    $_____________

b       Determine the cost of the units in ending inventory at February 25 using each of the following flow assumptions. SHOW ALL WORK!

         (1) LIFO                                                                                                $_____________

         (2) FIFO                                                                                                $_____________

         (3) Average cost                                                                                    $_____________

c. Assume that the units are sold to customers at a price of $17 per unit.   Compute the total sales revenue to be recognized upon sale of the product?

Answer 1

FIFO method of inventory valuation involves valuing inventory separately on the basis of their purchase rates. However, when inventory is issued/sold, the outgoing inventor shall be valued on the basis of the inventpry which has been procured first.

LIFO method of inventory valuation involves valuing inventory separately on the basis of their purchase rates. However, when inventory is issued/sold, the outgoing inventor shall be valued on the basis of the inventpry which has been procured last.

Average cost method of inventory valuation records receipts and issuances of inventory on the basis of an overall average cost of products received.

Stock registers under each of the above methods are accordingly given as under:

Answer A

Cost of goods sold under:

1. LIFO - 715
2. FIFO - 405
3. Average cost - 552.70

Answer B

Value of closing inventory under:

1. LIFO - 688
2. FIFO - 998
3. Average cost - 850.30

Answer C

Total sales revenue to be recognised = 65*17 = 1,105

In case of any questions or clarifications on the above workings, please share the same in the comments section.

All the best!