Some of the information found on a detail inventory card for Slatkin Inc. for th

Question

Some of the information found on a detail inventory card for Slatkin Inc. for the first month of operations is as follows.
Received Issued, Balance,
Date No. of Units Unit Cost No. of Units No. of Units
Jan. 2 1200 $3.00 1200
Jan. 7 700 500
Jan. 10 600 $3.20 1100
Jan. 13 500 600
Jan. 18 1000 $3.30 300 1300
Jan. 20 1100 200
Jan. 23 1300 $3.40 1500
Jan. 26 800 700
Jan. 28 1600 $3.50 2300
Jan. 31 1300 1000

a) From these data compute the ending inventory on each of the following bases. Assume that perpetual inventory records are kept in units only. Carry unit costs to the nearest cent and ending inventory to the nearest dollar.
1) First in, First Out (FIFO)
2) Last in, First Out (LIFO)
3) Average cost

b) If the perpetual inventory record is kept in dollars, and costs are computed at the time of each withdrawal, would the amounts shown as ending inventory in 1, 2, and 3 above be the same?
Explain and compute.

Explanation / Answer

PLEASE REMEMBER TO RATE THIS LIFESAVER. IT TOOK ME A LONG TIME.

Ok the first thing we need is the ending inventory. As I read it, this chart you have provided says that the ending # of units in inventory is 1000. Now we need to compute the cost of ending inventory using each method.

1) First In, First Out (FIFO)

Because this method assumes that the first items purchased are the first items sold, I am going to work from the end until I have accounting for a total of 1000 units (because the oldest items have already been sold and we are left with the 1000 newest items). Note that I am only using purchase prices because sales prices are irrelevant when computing the inventory cost.

(1000 * $3.50) = $3,500

2) Last In, First Out (LIFO)

This method assumes that the most recently purchased items are the ones that we sold first. Therefore, I am going to be working from the beginning because the newest items have already been sold; the units remaining in our inventory are the 1000 oldest units.

(1000 * $3.00) = $3,000

3) Weighted Average

For this method, I will first need to compute the weighted average cost per item. To do this we simply add the total cost of all the units and divide that by the total number of units.

# of units: 1200 + 600 + 1000 + 1300 + 1600 = 5,700 <-- This is the total # of units held througout the month.

Total cost: $3(1200) + $3.20(600) + $3.30(1000) + $3.40(1300) + $3.50(1600) = $18,840 <-- This is the total cost of all the units we purchased.

$18,840 / 5,700 = $3.31 <-- This is the weighted average cost per unit.

Now that we have the weighted average cost per unit, all we need to do is multiply this by the ending inventory.

$3.31 * 100 = $3,310

b) Yes, the would be the same. FIFO is by definition computed perpetually. The next unit I sell will always be the oldest unit. LIFO has to be the same because the last units in, still have not been sold. Weighted average would be the same because you will still have the same average cost per unit at the end even if it would be moving througout the process.

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