Causwell Company began 2018 with 11,000 units of inventory on hand. The cost of

Question

Causwell Company began 2018 with 11,000 units of inventory on hand. The cost of each unit was $4.00. During 2018 an additional 35,000 units were purchased at a single unit cost, and 21,000 units remained on hand at the end of 2018 (25,000 units therefore were sold during 2018). Causwell uses a periodic inventory system. Cost of goods sold for 2018, applying the average cost method, is $108,750. The company is interested in determining what cost of goods sold would have been if the FIFO or LIFO methods were used. Required: 1. Determine the cost of goods sold for 2018 using the FIFO method. [Hint:Determine the cost per unit of 2018 purchases.] 2. Determine the cost of goods sold for 2018 using the LIFO method. (Do not round intermediate calculations.) FIFO cost of goods sold LIFO cost of goods sold

Explanation / Answer

1. FIFO Cost of goods sold $       1,06,440 2. LIFO Cost of goods sold $       1,11,500 Workings: Master Chart 1) Units Unit Cost Total Beginning        11,000 $               4.00 $           44,000 Purchased        35,000 $               4.46 (Note-1) $       1,56,100 Total        46,000 $       2,00,100 Note-1: Under Average method, Average cost of goods sold = Cost of goods sold/Units sold = $       1,08,750 /               25,000 = $               4.35 Cost of total goods available for sale =               46,000 x $       4.35 = $       2,00,100 Cost of total goods available for sale = $       2,00,100 Less:Beginning Inventory cost = $           44,000 Cost of inventory purchased = $       1,56,100 Cost per unit of units purchased = $       1,56,100 /      35,000 = $               4.46 2) Now, calculate the requirement under FIFO and LIFO method, i) Under periodic system, Costs records are updated at the end of the period. FIFO stands for First in First out.It means Inventory bought first will be sold first. So, cost of goods sold will be calculated as follow: Units Unit Cost Total Beginning        11,000 $               4.00 $           44,000 Purchased        14,000 $               4.46 $           62,440 Total        25,000 $       1,06,440 ii) Under LIFO method, cost of goods sold is calculated just opposite to FIFO which are as follow: Units Unit Cost Total Purchased        25,000 $               4.46 $       1,11,500 Total        25,000 $       1,11,500

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