Causwell Company began 2013 with 23,000 units of inventory on hand. The cost of

Question

Causwell Company began 2013 with 23,000 units of inventory on hand. The cost of each unit was $5. During 2013 an additional 40,000 units were purchased at a single unit cost, and 33,000 units remained on hand at the end of 2013 (30,000 units therefore were sold during 2013). Causwell uses a periodic inventory system. Cost of goods sold for 2013, applying the average cost method, is $174,000. The company is interested in determining what cost of goods sold would have been if the FIFO or LIFO methods were used.

Explanation / Answer

Hi,

Please find the answer as follows:

Per Unit Average Cost = Cost of Goods Sold with Average Cost/Total Units Sold = 174000/30000 = 5.80

Cost of Goods Available for Sales = (Total of Inventory + Purchased Units)*Per Unit Average Cost = 63000*5.80 = 365400

Cost of Units Purchased in 2013 = Cost of Goods Available for Sale - Opening Inventory*Unit Cost = 365400 - 23000*5 = 250400

Per Units Cost of Units Purchased in 2013 = Cost of Units Purchased in 2013/Total Units Purchased =

250400/40000 = 6.26

Part 1: Cost of Goods Sold - FIFO

Cost of Goods Sold = 23000*5 + 7000*6.26 = 158820

Part 2: Cost of Goods Sold - LIFO

Cost of Goods Sold = 30000*6.26 = 187800

Thanks,

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