Periodic Inventory by Three Methods; Cost of Merchandise Sold The units of an it

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Periodic Inventory by Three Methods; Cost of Merchandise Sold The units of an item available for sale during the year were as follows: Jan. 1 Inventory Mar. 10 Purchase Aug. 30 Purchase Dec. 12 Purchase There are 80 units of the item in the physical inventory at December 31. The periodic inventory system is used. Determine the inventory cost and the cost of merchandise sold by three methods. Round interim calculations to one decimal and final answers to the nearest whole dollar. 30 units $126 70 units $138 30 units$144 70 units $146 Cost of Merchandise Inventory and Cost of Merchandise Sold Inventory Method Merchandise Inventory Merchandise Sold First-in, first-out (FIFO) Last-in, first-out (LIFO Weighted average cost

Explanation / Answer

Cost of Merchandise Inventory and Cost of Merchandise Sold

Inventory Method

Merchandise Inventory

Merchandise Sold

First-in, First-out (FIFO)

$11,660

$16,320

Last-in, First-out (LIFO)

$10,680

$17,300

Weighted Average Cost

$11,192

$16,788

Determination of cost of merchandise inventory and merchandise sold using

Merchandise Inventory

1-Jan

Inventory

30 units at $126

$3,780

10-Mar

Purchase

70 units at $138

$9,660

30-Aug

Purchase

30 units at $144

$4,320

12-Dec

Purchase

70 units at $146

$10,220

Total

200 units

$27,980

FIFO method,

ending Merchandise Inventory, 80 units = (10 units at $144) + (70 units at $146)

ending merchandise inventory = $1,440 + $10,220 = $11,660

Cost of Goods Sold -

cost of goods available for sale

200 units

$27,980

Ending merchandise inventory

80 units

($11,660)

Cost of goods sold

120 units

$16,320

The FIFO method assumes that oldest inventory is used to fulfill orders. Hence, the oldest unit costs apply to cost of goods sold, while the most recent costs apply to Merchandise Inventory.

The ending inventory of 80 units is valued at most recent costs as follows,

70 units at $146 and 10 units at $144 = $11,660

Merchandise Inventory

1-Jan

Inventory

30 units at $126

$3,780

10-Mar

Purchase

70 units at $138

$9,660

30-Aug

Purchase

30 units at $144

$4,320

12-Dec

Purchase

70 units at $146

$10,220

Total

200 units

$27,980

LIFO Method

ending Merchandise Inventory, 80 units = (30 units at $126) + (50 units at $138)

ending merchandise inventory = $3,780 + $6,900 = $10,680

Cost of Goods Sold -

cost of goods available for sale

200 units

$27,980

Ending merchandise inventory

80 units

($10,680)

Cost of goods sold

120 units

$17,300

Under the LIFO approach, the most recent inventory is used to fulfill the orders. Hence, the most recent unit costs apply to cost of goods sold and the oldest unit costs apply to ending inventory.

The ending inventory of 80 units is valued at the oldest inventory costs as follows,

30 units at $126 and 50 units at $138 to get the total Merchandise Inventory as $10,680

Merchandise Inventory

1-Jan

Inventory

30 units at $126

$3,780

10-Mar

Purchase

70 units at $138

$9,660

30-Aug

Purchase

30 units at $144

$4,320

12-Dec

Purchase

70 units at $146

$10,220

Total

200 units

$27,980

Weighted Average cost per unit = $27,980/200 units = $139.90

Ending Merchandise Inventory = 80 units x $139.90 = $11,192

Cost of Goods Sold -

Cost of Goods Available for sale

200 units

$27,980

Ending Merchandise Inventory

80 units

$11,192

Cost of Goods Sold

120 units

$16,788

or, COGS = 120 x $139.90 = $16,788

The weighted average cost per unit method is used to get a consistent price when prices are different for every purchase.

Cost of Merchandise Inventory and Cost of Merchandise Sold

Inventory Method

Merchandise Inventory

Merchandise Sold

First-in, First-out (FIFO)

$11,660

$16,320

Last-in, First-out (LIFO)

$10,680

$17,300

Weighted Average Cost

$11,192

$16,788

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