The Hospital for Ordinary Surgery uses pharmaceuticals for its patients. It star

Question

The Hospital for Ordinary Surgery uses pharmaceuticals for its patients. It started the year on January 1, with an inventory of 1,000 doses of an antibiotic drug that cost $17 per dose. On January 2, it purchased another 300 doses for $21 each. From January 3 through June 30 it used 800 doses. On July 1 it bought 500 more doses at $23 each. From July 2 through the end of the year it used 400 doses. What is the inventory value at the end of the year assuming FIFO? What is the value assuming LIFO?

Explanation / Answer

First, we'll do it assuming FIFO. On January 2nd, the hospital has 1,000 doses purchased fr $17, and 300 doses purchased for $21. When 800 doses are used from January 3 to June 30, all 800 will come out of the 1,000 doses purchased for $17, since they were purchased first. Then we have left 200 doses that cost $17 and 300 doses that cost $21. On July 1, after purchasing 500 more doses at $23 each, the inventory is at 200 doses that cost $17, 300 doses that cost $21, and 500 doses that cost $23. The remaining 400 doses would use up the drugs that cost $17, and 200 of the doses that cost $21. Therefore, the final inventory would be 100 doses of the $21 drug, and 500 doses of the $23 drug, giving the value of $2100 + $11500 = $13600. If we assume LIFO, then at the end of the period from January 3, to June 30, all 300 doses purchased for $21 would be used up, and there would be 500 doses left that cost $17. Then it would buy 500 more doses at $23 each, and when it uses 400 doses, all of them would come from the $23 drugs. Therefore, the final inventory would be 500 doses of the $17 drug, and 100 doses of the $23 drug, giving the final value of $8500+$2300 = $10800.

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