Question
The Alpenrose Milk Company uses a perpetual inventory system. The following transactions affected its merchandise inventory during the month of March, 2009:
March 1 — Inventory on hand — 3,000 units; cost $8.00 each.
March 8 — Purchased 5,000 units for $8.40 each.
March 14 — Sold 4,000 units for $14.00 each.
March 18 — Purchased 6,000 units for $8.20 each.
March 25 — Sold 7,000 units for $14.00 each.
March 31 — Inventory on hand — 3,000 units.
Required:
Determine the inventory balance Alpenrose would report on its March 31, 2009, balance sheet and the cost of goods sold it would report on its March, 2009, income statement using each of the following cost flow methods:
1. First-in, first-out (FIFO)
2. Last-in, first-out (LIFO)
3. Average cost
Explanation / Answer
FIRST IN FIRST OUT METHOD Date Opening Inventory Purchases Issued for Sale Closing Inventory Units Cost/Unit Total Cost Units Cost/Unit Total Cost Units Cost/Unit Total Cost Units Cost/Unit Total Cost Mar-1 3000 8 24000 0 0 3000 8 24000
Mar-8 0 5000 8.4 42000 0 3000 8 24000
Mar-8 0 0 0 5000 8.4 42000 Mar-14 0 0 3000 8 24000 0 Mar-14 0 0 1000 8.4 8400 4000 8.4 33600 Mar-18 0 6000 8.2 49200 0 4000 8.4 33600 Mar-18 0 0 0 6000 8.2 49200 Mar-25 0 0 4000 8.4 33600 0 Mar-25 0 0 3000 8.2 24600 3000 8.2 24600 Mar-31 0 0 0 3000 8.2 24600 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 3000 8 24000 11000 91200 11000 90600 NOTE: $ 90,600/- will be reported in income statement as Cost of Goods Sold during March-2009
LAST IN FIRST OUT METHOD Date Opening Inventory Purchases Issued for Sale Closing Inventory Units Cost/Unit Total Cost Units Cost/Unit Total Cost Units Cost/Unit Total Cost Units Cost/Unit Total Cost Mar-1 3000 8 24000 0 0 3000 8 24000 Mar-8 0 5000 8.4 42000 0 3000 8 24000 Mar-8 0 0 0 5000 8.4 42000 Mar-14 0 0 4000 8.4 33600 3000 8 24000 Mar-14 0 0 1000 8.4 8400 Mar-18 0 6000 8.2 49200 0 3000 8 24000 Mar-18 0 0 0 1000 8.4 8400 Mar-18 6000 8.2 49200 Mar-25 0 0 6000 8.2 49200 0 Mar-25 0 0 1000 8.4 8400 3000 8 24000 Mar-31 0 0 0 3000 8 24000 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 3000 8 24000 11000 91200 11000 91200 NOTE: $ 91,200/- will be reported in income statement as Cost of Goods Sold during March-2009
AVERAGE COST METHOD Date Opening Inventory Purchases Issued for Sale Closing Inventory Units Cost/Unit Total Cost Units Cost/Unit Total Cost Units Cost/Unit Total Cost Units Cost/Unit Total Cost Mar-1 3,000 8.00 24,000 - - 3,000 8.00 24,000 Mar-8 - 5,000 8.40 42,000 - 8,000 8.25 66,000 Mar-14 - - 4,000 8.25 33,000 4,000 8.25 33,000 Mar-18 - 6,000 8.20 49,200 - 10,000 8.22 82,200 Mar-25 - - 7,000 8.22 57,540 3,000 8.22 24,660 Mar-31 - - - 3,000 8.22 24,660 - - - - 3,000 8 24,000 11,000 91,200 11,000 90,540 NOTE: $ 90,540/- will be reported in income statement as Cost of Goods Sold during March-2009 Average rate derivation (Mar-8) Average rate derivation (Mar-18) Opening 24000 Opening 33000 Purchases 42000 Purchases 49200 66000 Divide by Units 82200 Divide by Units Units 8000 Units 10000 Rate 8.25 Rate 8.22
