Question

Causwell Company began 2018 with 22,000 units of inventory on hand. The cost of each unit was $6.00. During 2018 an additional 42,000 units were purchased at a single unit cost, and 32,000 units remained on hand at the end of 2018 (32,000 units therefore were sold during 2018). Causwell uses a periodic inventory system. Cost of goods sold for 2018, applying the average cost method, is $225,600. The company is interested in determining what cost of goods sold would have been if the FIFO or LIFO methods were used.
Required:
1. Determine the cost of goods sold for 2018 using the FIFO method. [Hint: Determine the cost per unit of 2018 purchases.]
2. Determine the cost of goods sold for 2018 using the LIFO method. (Do not round intermediate calculations.)

	FIFO cost of goods sold LIFO cost of goods sold

Answer 1

1	FIFO Cost of goods sold	=	$   2,08,000
2	LIFO Cost of goods sold	=	$   2,43,200
1	FIFO Method:
		Available for sale			Cost of goods sold			Ending Inventory
		Units	Unit price	Amount	Units	Unit price	Amount	Units	Unit price	Amount
	Beginning Inventory	22,000	$                  6	$ 1,32,000	22,000	$              6	$ 1,32,000	-	$              6	$              -
	Purchases	42,000	$            7.60	$ 3,19,200	10,000	$        7.60	$     76,000	32,000	$        7.60	$ 2,43,200
		64,000		$ 4,51,200	32,000		$ 2,08,000	32,000		$ 2,43,200
2	LIFO Method:
		Available for sale			Cost of goods sold			Ending Inventory
		Units	Unit price	Amount	Units	Unit price	Amount	Units	Unit price	Amount
	Beginning Inventory	22,000	$                  6	$ 1,32,000	-	$              6	$              -	22,000	$              6	$ 1,32,000
	Purchases	42,000	$            7.60	$ 3,19,200	32,000	$        7.60	$ 2,43,200	10,000	$        7.60	$     76,000
		64,000		$ 4,51,200	32,000		$ 2,43,200	32,000		$ 2,08,000
	Workings:
	Average cost Method:
		Available for sale			Cost of goods sold			Ending Inventory
		Units	Unit price	Amount	Units	Unit price	Amount	Units	Unit price	Amount
	Beginning Inventory	22,000	$                  6	$ 1,32,000
	Purchases	42,000	$            7.60	$ 3,19,200
	Total	64,000	$            7.05	$ 4,51,200	32,000	$        7.05	$ 2,25,600	32,000	$        7.05	$ 2,25,600
	Average cost	=	($2,25,600 / 32,000)
		=	$7.05
a	Total units	=	64,000
b	Average cost	=	$            7.05
c	(a X b)	=	$   4,51,200
d	Beginning Inventory cost	=	$   1,32,000
e	(c - d)	=	$   3,19,200
f	Purchase units	=	42,000
(e / f)	Purchase price per unit	=	$            7.60