Question

In: Accounting

1. XYZ Company is a startup company, and it has purchased inventory as follows: Date Quantity...

1. XYZ Company is a startup company, and it has purchased inventory as follows:

Date Quantity Price
2/1/16 1000 1.05
3/1/16 500 1.10
5/1/16 800 1.00
6/1/16 1500 .90
7/1/16 2500 1.02
8/1/16 750 1.15

Assume you have sold 2,250 units in 2016.

Given that fact, how much would inventory be valued on the balance sheet under the following methods and how much Cost of Goods Sold would be recognized as well?

a. LIFO Method

b. FIFO Method

c. Average Cost Method

Solutions

Expert Solution

  • All working forms part of the answer
  • Working for Ending no. of units:

--Units purchased = 1000 + 500 + 800 + 1500 + 2500 + 750 = 7050 units

---Units sold = 2250 units

--Ending Inventory units = 7050 – 2250 = 4,800 units

  • Requirement ‘a’

--LIFO Method

--Under LIFO method, ending Inventory is first valued on the earliest purchases, then moving down to latest purchases.

--Working

Ending Units 4800 units, valued at purchases on:

Units

Rate per unit

Amount of Inventory

01-Feb-16

1000

$                             1.05

$                                        1,050.00

01-Mar-16

500

$                             1.10

$                                           550.00

01-May-16

800

$                             1.00

$                                           800.00

01-Jun-16

1500

$                             0.90

$                                        1,350.00

01-Jul-16

1000

$                             1.02

$                                        1,020.00

Total

4800

$                                        4,770.00

---Answer: Ending Inventory as per LIFO = $ 4770

  • Requirement ‘b’

--FIFO Method

--Under this method, ending inventories are first valued from latest purchases, followed by earlier purchases.

---Working

Ending Units 4800 units, valued at purchases on:

Units

Rate per unit

Amount of Inventory

01-Aug-16

750

$                             1.15

$                                           862.50

01-Jul-16

2500

$                             1.02

$                                        2,550.00

01-Jun-16

1500

$                             0.90

$                                        1,350.00

01-May-16

50

$                             1.00

$                                              50.00

Total

4800

$                                        4,812.50

---Answer: value of ending inventory in Balance Sheet as per FIFO Method = $ 4,812.50

  • Requirement ‘c’

--Average Cost method

---Average cost per unit is calculated and then multiplied by ending units

---Working

Ending Units 4800 units, valued at purchases on:

Units

Rate per unit

Amount of purchases

01-Feb-16

1000

$                             1.05

$                                        1,050.00

01-Mar-16

500

$                             1.10

$                                           550.00

01-May-16

800

$                             1.00

$                                           800.00

01-Jun-16

1500

$                             0.90

$                                        1,350.00

01-Jul-16

2500

$                             1.02

$                                        2,550.00

01-Aug

750

$                             1.15

$                                           862.50

TOTAL

7050

$                                        7,162.50

--Answer—

A

Total Purchases

$                                     7,162.50

B

Total Units purchased

                                               7,050

C=A/B

Average cost per unit

$                                              1.02

D

Ending Units

                                               4,800

E=C x D

Value of ending Inventory

$                                     4,896.00

ekkarill92 answered 1 year ago
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