Question

The Shirt Shop had the following transactions for T-shirts for 2018, its first year of operations:

Jan. 20 Purchased 420 units @ $ 9 = $ 3,780

Apr. 21 Purchased 150 units @ $ 10 = 1,500

July 25 Purchased 230 units @ $ 12 = 2,760

Sept. 19 Purchased 80 units @ $ 13 = 1,040

During the year, The Shirt Shop sold 730 T-shirts for $18 each.

Compute the amount of ending inventory The Shirt Shop would report on the balance sheet, assuming the following cost flow assumptions: (1) FIFO, (2) LIFO, and (3) weighted average

Answer 1

Answer 1
Under FIFO method , inventory from old purchases is sold first.
Calculation of ending inventory using FIFO
Total Purchase cost		$9,080.00
Less : Cost of goods sold
- 420 units x $9	$3,780.00
- 150 units x $10	$1,500.00
- 160 units x $12	$1,920.00	$7,200.00
Ending Inventory using FIFO method		$1,880.00
Answer 2
Under LIFO method , inventory from latest purchases is sold first.
Calculation of ending inventory using LIFO
Total Purchase cost		$9,080.00
Less : Cost of goods sold
- 80 units x $13	$1,040.00
- 230 units x $12	$2,760.00
- 150 units x $10	$1,500.00
- 270 units x $9	$2,430.00	$7,730.00
Ending Inventory using LIFO method		$1,350.00
Answer 3
Calculation of ending inventory using weighted average
Under this method , unit cost is derived by dividing total purchase cost by total quantity purchases and
that unit cost is applied applied to ending inventory units.
Unit cost = Total Purchase cost / Total Units purchased = $9080 / 880 units = $10.32 per unit
Ending Inventory using weighted average method = Ending inventory units * Unit cost
Ending Inventory using weighted average method = 150 units * $10.32 = $1,548