Eggers Company reports the following for the month of June. Instructions Compute

Question

Eggers Company reports the following for the month of June. Instructions Compute the cost of the ending inventory and the cost of goods sold under FIFO, LIFO, and average-cost. (Round average unit cost to three decimal places). Which costing method gives the highest ending inventory? The highest cost of goods sold? Why? How do the average-cost values for ending inventory and cost of goods sold relate to ending inventory and cost of goods sold for FIFO and LIFO? Explain why the average cost is not $6.

Explanation / Answer

Eggers Company All Amounts in $ (a) Cost of Goods Sold and Ending Inventory, Costing Method Wise Using LIFO - Cost of Goods Sold and Ending Inventory Date Particulars Qty. Rate/unit Amount $ in $ 01-Jun Inventory 120 5 600 12-Jun Purchases 370 6 2220 23-Jun Purchases 200 7 1400 30-Jun Cost of Goods Sold -200 7 -1400 30-Jun Cost of Goods Sold -260 6 -1560 2960 30-Jun Inventory 110 6 660 30-Jun Inventory 120 5 600 1260 Using FIFO - Cost of Goods Sold and Ending Inventory Date Particulars Qty. Rate/unit Amount $ in $ 01-Jun Inventory 120 5 600 12-Jun Purchases 370 6 2220 23-Jun Purchases 200 7 1400 30-Jun Cost of Goods Sold -120 5 -600 30-Jun Cost of Goods Sold -340 6 -2040 2640 30-Jun Inventory 30 6 180 30-Jun Inventory 200 7 1400 1580 Using Weighted Average - Cost of Goods Sold and Ending Inventory Date Particulars Qty. Rate/unit Amount $ in $ 01-Jun Inventory 120 5 600 12-Jun Purchases 370 6 2220 23-Jun Purchases 200 7 1400 690 6.115942 4220 30-Jun Cost of Goods Sold -460 6.115942 2813.333 30-Jun Inventory 230 6.115942 1406.667 (b) Since the cost of goods sold is based on the basis of the first purchases being sold first, the cost of goods sold is the highest in case of LIFO. Since the cost of goods sold is based on the basis of the last purchases being sold first, the inventory is valued at the lowest rates in case of maximum quantity, thereby leading to a highest inventory valuation for FIFO. (c)   Average Cost of Goods Sold (FIFO + LIFO) = (2640 + 2960) / 2 = 2800 Cost of Goods Sold per Weighted Average Cost = 2813.3 Average Inventory Valuation (FIFO + LIFO) = (1580 + 1260) / 2 = 1420 Inventory Valuation per Weighted Average Cost = 1406.67 (d) The average cost is not 6, since part of the purchases are at 7, and the opening inventory is valued at 5.

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