In its first month of operations, Literacy for the Illiterate opened a new books

Question

In its first month of operations, Literacy for the Illiterate opened a new bookstore and bought merchandise in the following order: (1) 340 units at $10 on January 1, (2) 580 units at $11 on January 8, and (3) 880 units at $12 on January 29. Assume 1, 090 units are on hand at the end of the month, calculate the cost of goods available for sale, ending inventory, and cost of goods sold under the (a) FIFO. (6) LIFO. and (c) weighted average cost flow assumptions. Assume a periodic inventory system is used. (Round "Cost per Unit" to 2 decimal places.)

Explanation / Answer

Part A)

Cost of Goods Available for Sale:

The cost of goods available for sale will be the same under all the three methods. It will be calculated as follows:

Cost of Goods Available for Sale = Value of Opening Inventory + Value of Inventory Procured on January 8 + Value of Inventory Procured on January 29

Using the information provided in the question, we get,

Cost of Goods Available for Sale = 340*10 + 580*11 + 880*12 = $20,340

_________

Part B)

Cost of Goods Sold:

Total Units Sold = Total Units in Inventory - Ending Inventory = (340 + 580 + 880) - 1,090 = 710 units

________

FIFO

Under FIFO method, the opening inventory and inventory procured first will be sold first.

Cost of Goods Sold = 340*10 [from Opening Inventory] + (710 - 340)*11 [from January 8 Purchases] = $7,470

________

LIFO

Under LIFO method, the inventory procured last will be sold first.

Cost of Goods Sold = 710*12 [from January 29 Purchases] = $8,520

________

Weighted Average

Under Weighted Average method, we will take the average cost to determine the value of cost of goods sold.

Average Cost = Cost of Goods Available for Sale/Total Units = 20,340/(340 + 580 + 880) = $11.30

Cost of Goods Sold = 710*11.30 = $8,023

_________

Part C)

FIFO

Under FIFO method, the ending inventory will comprise of most latest units purchased.

Ending Inventory = 880*12 [from January 29 Purchases] + (1,090 - 880)*11 [from January 8 Purchases] = $12,870

________

LIFO

Under LIFO method, the ending inventory will comprise of opening inventory/most earliest units purchased.

Ending Inventory = 340*10 [from Opening Inventory] + 580*11 [from January 8 Purchases] + 170*12 [from January 29 Purchases] = $11,820

________

Weighted Average

Under Weighted Average method, the ending inventory will be recorded at the average cost of $11.30.

Ending Inventory = 1,090*11.30 = $12,317

________

Tabular Representation:

FIFO LIFO Weighted Average Cost Cost of Goods Available for Sale 20,340 20,340 20,340 Ending Inventory 12,870 11,820 12,317 Cost of Goods Sold 7,470 8,520 8,023

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