Applying and Analyzing Inventory Costing Methods At the beginning of the current

Question

Applying and Analyzing Inventory Costing Methods

At the beginning of the current period, Chen carried 1,000 units of its product with a unit cost of $24. A summary of purchases during the current period follows:

During the current period, Chen sold 2,800 units.
a. Assume that Chen uses the first-in, first-out method. Compute its cost of goods sold for the current period and the ending inventory balance.

b. Assume that Chen uses the last-in, first-out method. Compute its cost of goods sold for the current period and the ending inventory balance.

c. Assume that Chen uses the average cost method. Compute its cost of goods sold for the current period and the ending inventory balance.

Units Unit Cost Cost Beginning Inventory 1,000 $24 $24,000 Purchases: #1 1,800 26 46,800 #2 800 30 24,000 #3 1,200 33 39,600

Explanation / Answer

First in first out method

Cost of goods sold = 1,000 x 24 + 1,800 x 26

= 24,000 + 46,800

= $ 70,800

Ending inventory = 800 x 30 + 1,200 x 33

= 24,000 + 39,600

= $ 63,600

Last in first out method

Cost of goods sold = 1,200 x 33 + 800 x 30 + 800 x 26

= 39,600 + 24,000 + 20,800

= $ 84,400

Ending inventory = 1,000 x 24 + 1,000 x 26

= 24,000 + 26,000

= $ 50,000

Average cost method

Average cost = 24 + 26 + 30 + 33

4

= $ 28.25

Cost of goods sold = 2,800 x 28.25

= $ 79,100

Ending inventory = 2,000 x 28.25

= $ 56,500

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