Question

In: Accounting

Determine the inventory cost and the cost of merchandise sold by three methods. Round interim calculations to one decimal and final answers to the nearest whole dollar.

Periodic Inventory by Three Methods; Cost of Merchandise Sold 

The units of an item available for sale during the year were as follows: 

Jan. 1 Inventory 30 units @ $110 

Mar. 10 Purchase 70 units @ $120 

Aug. 30 Purchase 30 units @ $124 

Dec. 12 Purchase 70 units @ $128 


There are 80 units of the item in the physical inventory at December 31. The periodic inventory system is used. 

Determine the inventory cost and the cost of merchandise sold by three methods. Round interim calculations to one decimal and final answers to the nearest whole dollar. 

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Solutions

Expert Solution

Answer 1)

Calculation of cost of Merchandise Inventory under FIFO method

Date

Particulars

Units

Cost per unit (in $)

Total Cost (in $)

Aug'30

Purchase

10

124

                     1,240

Dec'12

Purchase

70

128

                     8,960

Total

80

                   10,200

Therefore the cost of merchandise inventory under FIFO method is $ 10,200.

Calculation of cost of Merchandise sold under FIFO method

Date

Particulars

Units

Cost per unit (in $)

Total Cost (in $)

Jan'1

Beginning Inventory

30

110

                     3,300

Mar'10

Purchase

70

120

                     8,400

Aug'30

Purchase

20

124

                     2,480

Total

120

                   14,180

Therefore the cost of merchandise sold under FIFO method is $ 14,180.

Note: Under FIFO method, units of merchandise which are first bought are sold first and so on.

Cost of Merchandise Inventory: Out of 80 units in ending inventory, 10 units will be from the purchases made on Aug’30 at $ 124 per unit and balance 70 units will be from the purchases made on Dec’12 at $ 128 per unit.

Cost of Merchandise sold: Out of 120 units sold, 30 units will be from the units in beginning inventory on Jan’1 at $ 110 per unit, 70 units will be from the purchases made on Mar’10 at $ 120 per unit and balance 20 units will be from the units bought on Aug’30 at $ 124 per unit.

Answer 2)

Calculation of cost of Merchandise Inventory under LIFO method

Date

Particulars

Units

Cost per unit (in $)

Total Cost (in $)

Jan'1

Beginning Inventory

30

110

                     3,300

Mar'10

Purchase

50

120

                     6,000

Total

80

                     9,300

Therefore the cost of merchandise inventory under LIFO method is $ 9,300.

Calculation of cost of Merchandise sold under LIFO method

Date

Particulars

Units

Cost per unit (in $)

Total Cost (in $)

Mar'10

Purchase

20

120

                     2,400

Aug'30

Purchase

30

124

                     3,720

Dec'12

Purchase

70

128

                     8,960

Total

120

                   15,080

Therefore the cost of merchandise sold under LIFO method is $ 15,080

Note: Under LIFO method, units of merchandise which are latest bought are sold first and moving backwards.

Cost of Merchandise Inventory: Out of 80 units in ending inventory, 30 units will be from the in beginning inventory on Jan’1 at $ 110 per unit and balance 50 units will be from the purchases made on Mar’10 at 120 per unit.

Cost of Merchandise sold: Out of 120 units sold, 20 units will be from purchases made on Mar’10 at $ 120 per unit, 30 units will be from the purchases made on Aug’30 at $ 124 per unit and balance 70 units will be from the units bought on Dec’12 at $ 128 per unit.

Answer 3)

Calculation of cost of Merchandise Inventory and cost of Merchandise sold under Weighted Average cost method

Date

Particulars

Units

Cost per unit (in $)

Total Cost (in $)

Jan'1

Beginning Inventory

30

110

                     3,300

Mar'10

Purchase

70

120

                     8,400

Aug'30

Purchase

30

124

                     3,720

Dec'12

Purchase

70

128

                     8,960

Total

200

                   24,380

Weighted average cost = Total cost of beginning inventory and units purchased during the period/ total number of units in beginning inventory and units bought during the period

Weighted average cost = $ 24,380/200 units

                                          = $ 121.90

Therefore the weighted average cost is $ 121.90 per unit

Cost of merchandise inventory = number of units in ending inventory X weighted average cost

                                                         = 80 units X $ 121.90

                                                         = $ 9,752

Therefore the cost of merchandise inventory under weighted average cost method is $ 9,752.

Cost of merchandise sold = number of units sold X weighted average cost

                                                         = 120 units X $ 121.90

                                                         = $ 14,628

Therefore the cost of merchandise sold under weighted average cost method is $ 14,628.


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