The units of an item available for sale during the year were as follows” Jan 1.
ID: 2451588 • Letter: T
Question
The units of an item available for sale during the year were as follows” Jan 1. Inventory 42 units at $180 Apr. 10 purchase 58 units at $195 Sept 30 purchase 20 units at $204 Dec 12 purchase 30 units at $210 There are 37 units of the item in the physical inventory as December 31. The periodic inventory system is used. Determine the inventory cost and the cost of merchandise sold by three methods, presenting your answers in the following form:
Merchandise inventory Merchandise sold
a. First-in, first-out $ $
b. Last-in, first-out
c. Average cost
Explanation / Answer
The following inventory is purchased:
1 Jan 42 units@ $180
10 April 58 units @ $195
30 Sep 20 units @ $204
12 Dec 30 units @ $210
Total inventory purchased is 150 pcs out of which 37 is in the stock. It means 113 pcs are sold.
According to the FIFO,Lifo and average cost the following is the cost of merchandise sold and inventory cost:
1) FIFO: According to First In First out method the inventory which comes first will be sold first. Total inventory purchased is 150 pcs out of which 37 is in the stock. It means 113 pcs are sold. So all the inventory purchased in the month of Jan (42 pcs), April (58 pcs) and 13 pcs of Sep month will be sold and remaining 7 pcs of sep and 30 pcs of December will be our inventory at the end.
Cost of mercandise sold= (42*180)+(58*195)+((20-7)*204)= $21522
Cost of inventory= (7*204)+(30*210)= $7728
2) Last in First Out: LIFO means the inventory which comes last in the stock will be sold first.The stock is taken from the last purchase and than moves on to the second last purchase and so on. This means that the inventory which will be in the stock will be from starting purchases. Total inventory purchased is 150 pcs out of which 37 is in the stock. It means 113 pcs are sold.So the cost of mercandise sold will be from the month of Dec(30 pcs), sep(20 pcs), April(58 pcs) and from Jan (5 pcs) as 37(42-5) pcs will be the inventory from Jan purchase. So
Cost of Mercandise sold= (30*210)+(20*204)+(58*195)+(5*180)= $22590
Cost of inventory= 37*180= $6660
3) Average Cost: Avg. cost means we need to calculate the average cost of all the inventory purchaed at different prices.
Avg. Cost= No.of Inventory purchased* Cost per pc of the inventory/ No of Inventory purchased
= (42*180)+(58*195)+((20*204)+(30*210)/42+58+20+30
= $29250/150= $195 per pc
Total inventory purchased is 150 pcs out of which 37 is in the stock. It means 113 pcs are sold.
Cost of mercandise sold= ((150-37)*195)= $22035
Cost of inventory sold= 37*195= $7215
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