Causwell Company began 2016 with 17,000 units of inventory on hand. The cost of

Question

Causwell Company began 2016 with 17,000 units of inventory on hand. The cost of each unit was $5.00. During 2016 an additional 35,000 units were purchased at a single unit cost, and 27,000 units remained on hand at the end of 2016 (25,000 units therefore were sold during 2016). Causwell uses a periodic inventory system. Cost of goods sold for 2016, applying the average cost method, is $142,500. The company is interested in determining what cost of goods sold would have been if the FIFO or LIFO methods were used. Determine the cost of goods sold for 2016 using the FIFO method. Determine the cost of goods sold for 2016 using the LIFO method. (Do not round intermediate calculations.)

Explanation / Answer

given Average cost of goods=$142,500

Assume cost of second purchase=x

so average cost=(17,000*$5+35,000*x)*25,000/52,000

By solving x=6.04

1) as per FIFO=17,000*$5+8,000*$6.04=$133,320

2) as per LIFO=25,000*$6.04=$151,000

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