Exercise 7-7 (Algorithmic) FIFO, LIFO Costs Under Perpetual Inventory System The

Question

Exercise 7-7 (Algorithmic) FIFO, LIFO Costs Under Perpetual Inventory System The following units of a particular item were available for sale during the year: Beginning inventory 22 units @ $47 Sale 19 units @ $66 First purchase 17 units @ $50 Sale 8 units @ $67 Second purchase 18 units @ $51 Sale 12 units @ $67 The firm uses the perpetual inventory system, and there are 18 units of the item on hand at the end of the year. a. What is the total cost of the ending inventory according to FIFO? $ b. What is the total cost of the ending inventory according to LIFO? $

Explanation / Answer

Beginning inventory 22 units @ $47 Sale 19 units @ $66 First purchase 17 units @ $50 Sale 8 units @ $67 Second purchase 18 units @ $51 Sale 12 units @ $67 18 units remaining a. FIFO Start: 22@47 After first sale: 3@47 (19 sold) After first purchase: 3@47; 17@50 After second sale: 12@50 (8 units sold: 3 from the first batch, 5 from the remaining) After second purcahse: 12@50; 18@51 After final sale: 18@51 (12 units sold: first in first out, so the 12@50 are the ones that are gone; the 18@51 is what remains) Total cost of ending inventory 18*51 = 918 b. LIFO Start: 22@47 After first sale: 3@47 (19 sold) After first purchase: 3@47; 17@50 After second sale: 3@47; 9@50 (8 units sold; these units come from the most recent batch--the second batch) After second purchase: 3@47; 9@50; 18@51 After final sale: 3@47; 9@50; 6@51 (those 12 that were sold come from the last in batch) 3*47 = 141 9*50 = 450 6*51 = 306 Total cost of ending inventory 897

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