2. The inventory data for an item for November are: Nov. 4: Sold 10 units .Nov.

Question

2. The inventory data for an item for November are: Nov. 4: Sold 10 units .Nov. 17: Sold 20 units Now.I: Inventory 20 units at $19 . Nov. 10: Purchased 30 units at $20 Nov. 30: Purchased 10 units at $21 Using a perpetual system, what is the cost of the merchandise sold for November if the company uses LIFO a. $610 b, $600 e, $590 d. $580 Use the following information for the next three questions (26, 27, &28) The following units of an inventory item were available for sale during the year: Beginning inventory 10 units at $50 .First purchase 25 units at $55 . Second purchase 30 units at $60 . Third purchase 15 units at $65 The firm uses the periodie inventory system. During the year, 60 units of the item were sold. 26. The value of ending inventory using FIFO is: a. $1,250 b. $1,150 c. $1,275 d. $1,050 27, The value of ending inventory using LIFO is: a. $1,250 b. $1,150 c. $1,275 d. $1,050 28. The value of ending inventory using average cost is: a. $1,252 b. $1,163 c. $1,275 d. $1,050 During a period of consistently rising prices, the method of inventory that will result in reporting the greatest cost of merchandise sold is a. FIFO b. LIFO 29. c. average cost d. weighted average

Explanation / Answer

25.   c. $ 590 Workings: Under perpetual system, Inventory record is updated as and when transaction took place. Transaction -I: Sales of 10 Units on Nov 4 LIFO stands for last in first out.It means inventory bought last will be sold first. In this case as there is only one inventory of beginning Nov 1, entire sale is from Nov 1 Inventory. Cost of goods sold = Units sold x Cost per unit sold = 10 x $ 19 = $        190 Transaction-II:Sales of 20 Units on Nov. 17 In this case Sales of 20 units will be recorded as follow(LIFO): 20 Units from Nov . 10 Purchase Cost of goods sold = 20 x $ 20 = $           400 Cost of goods sold will be cost of above two sales which are as follow: Cost of goods sold on Nov 4 $        190 Cost of goods sold on Nov 17 $        400 Cost of goods sold $        590 26.       c. $ 1,275 Working: Under periodic inventory system, inventory record is updated at the end of relevant period. Units Unit Rate Total Cost Beginning Inventory 10 $          50 $           500 First Purchase 25 $          55 $       1,375 Second Purchase 30 $          60 $       1,800 Third Purchase 15 $          65 $           975 Total               80 $       4,650 FIFO stands or first in first out.60 Units were sold.So remaining 20 Units as per FIFO method is as follow: Units Unit Rate Total Cost 5 Units remained from Second purchase 5 $          60 $           300 15 Units remained from third purchase 15 $          65 $           975 Total 20 $       1,275 27.    d. $ 1,050 As per LIFO, Invenory would be calculated as folllow: Units Unit Rate Total Cost Beginning Inventory 10 $          50 $           500 First Purchase 10 $          55 $           550 Total 20 $       1,050 28. b. $ 1,163 Average cost = Total of cost of goods available for sale/Total Units available for sale = $    4,650 /                 80 = $    58.13 Cost of Ending Inventory (Average ) = Ending Inventory units x Average Cost per unit = 20 x $       58.13 = $       1,163

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