Question

Penn Company uses a periodic inventory system. At the end of the annual accounting period, December 31 of the current year, the accounting records provided the following information for product 1:

Required:

 Compute ending inventory and cost of goods sold for the current year under FIFO, LIFO, and average cost inventory costing methods. (Round "Average cost per unit" to 2 decimal places and final answers to nearest whole dollar amount.)

Answer 1

Under the First in first out (FIFO) method of inventory valuation, Cost of goods sold consists of the units from beginning inventory and earliest purchases. Ending inventory consists of the units from recent purchases.

Ending inventory of 4,090 units consists of 2,960 units from August 1 purchases and 1,130 units from March 21 purchases.

Ending Inventory = (2,960*$8) + ($1,130*$7)

= $23,680 + $7,910

= $31,590

Under the Last in first out (LIFO) method of inventory valuation, Cost of goods sold consists of the units from recent purchases. Ending inventory consists of the units from beginning inventory and earliest purchases.

Ending inventory of 4,090 units consists of 1,970 units from beginning inventory and 2,120 units from March 21 purchases.

Ending inventory = (1,970*$5) + (2,120*$7)

= $9,850 + $14,840

= $24,690

Cost of units available for sale = (1,970*$5) + (5,080*$7) + (2,960*$8)

= $9,850 + $35,560 + $23,680

= $69,090

Number of units available for sale = 1,970 + 5,080 + 2,960

= 10,010

Cost per unit under Average cost method = Cost of units available for sale / Number of units avaialble for sale

= $69,090 / 10,010

= $6.90

Ending Inventory = 4,090*$6.90

= $28,221

Cost of goods sold = Cost of goods available for sale - Ending inventory

	FIFO	LIFO	Average Cost
Ending inventory	$31,590	$24,690	$28,221
Cost of goods sold	$37,500 ($69,090-$31,590)	$44,400 ($69,090-$24,690)	$40,869 ($69,090-$28,221)