Question

Ziad Company had a beginning inventory on January 1 of 285 units of Product 4-18-15 at a cost of $19 per unit. During the year, the following purchases were made.

Mar. 15

760 units

at

$22

Sept. 4

665 units

at

$25

July 20

475 units

at

$23

Dec. 2

190 units

at

$28

1,900 units were sold. Ziad Company uses a periodic inventory system.

A: Determine the cost of good available for sale

B: Calculate the average cost per unit

C: Determine the ending inventory, and the cost of goods sold under each of the assumed cost flow methods. (FIFO, LIFO, and average cost)\

D: Which cost flow method results in (1) the highest inventory amount for the balance sheet, and (2) the highest cost of goods sold for the income statement?

Answer 1

Answer A.

Beginning Inventory: 285 units @ $19 per unit
Purchase Mar. 15: 760 units @ $22 per unit
Purchase July 20: 475 units @ $23 per unit
Purchase Sept. 4: 665 units @ $25 per unit
Purchase Dec. 2: 190 units @ $28 per unit

Number of units available for sale = 285 + 760 + 475 + 665 + 190
Number of units available for sale = 2,375

Cost of Goods available for sale = 285*$19 + 760*$22 + 475*$23 + 665*$25 + 190*$28
Cost of Goods available for sale = $55,005

Answer B.

Number of units available for sale = 2,375
Cost of Goods available for sale = $55,005

Average Cost per unit = Cost of Goods available for sale / Number of units available for sale
Average Cost per unit = $55,005 / 2,375
Average Cost per unit = $23.16

Answer C.

FIFO:

Number of units sold = 1,900

Cost of Goods Sold = 285*$19 + 760*$22 + 475*$23 + 380*$25
Cost of Goods Sold = $42,560

Ending Inventory = Cost of Goods available for sale - Cost of Goods Sold
Ending Inventory = $55,005 - $42,560
Ending Inventory = $12,445

LIFO:

Number of units sold = 1,900

Cost of Goods Sold = 190*$28 + 665*$25 + 475*$23 + 570*$22
Cost of Goods Sold = $45,410

Ending Inventory = Cost of Goods available for sale - Cost of Goods Sold
Ending Inventory = $55,005 - $45,410
Ending Inventory = $9,595

Average Cost:

Average Cost per unit = $23.16
Number of units sold = 1,900

Cost of Goods Sold = 1,900*$23.16
Cost of Goods Sold = $44,004

Ending Inventory = Cost of Goods available for sale - Cost of Goods Sold
Ending Inventory = $55,005 - $44,004
Ending Inventory = $11,001

Answer D.

FIFO results in highest inventory amount for the balance sheet
LIFO results in highest cost of goods sold for the income statement