Kirtland Corporation uses a periodic inventory system. At the end of the annual

Question

Kirtland Corporation uses a periodic inventory system. At the end of the annual accounting period, December 31, 2015, the accounting records for the most popular item in inventory showed the following: Transactions Units Unit Cost Beginning inventory, January 1, 2015 500 $5.00 Transactions during 2015: a. Purchase, January 30 400 4.40 b. Purchase, May 1 560 6.00 c. Sale ($7 each) (260) d. Sale ($7 each) (800) Required: a. Compute the amount of goods available for sale. b. & c. Compute the amount of ending inventory and cost of goods sold at December 31, 2015 under Average cost, First-in, first-out, Last-in, first-out, Specific identification of the inventory costing methods. Specific identification: assuming that the first sale was selected two-fifths from the beginning inventory and three-fifths from the purchase of January 30, 2015. Assume that the second sale was selected from the remainder of the beginning inventory, with the balance from the purchase of May 1, 2015. (Do not round intermediate calculations. Round "Average Cost and Specific Identification" to 2 decimal places.)

Explanation / Answer

Summarizing the data in the question :

Answer a

Computation of amount of goods available for sales

= Beginning inventory + Purchase value

= (500 * $5.00) + (400 * $4.40) + (560 * $6.00) = $2,500 + $1,760 + $3,360 = $7,620

Answer b & c

Computation of amount of ending inventory and cost of goods sold (COGS) under Average cost

Average cost per unit = Amount of goods available for sales / Units of goods available for sales

= $7,620 / (500 + 400 + 560) =  $7,620 / 1,460 = $5.21918

Computation of amount of ending inventory and cost of goods sold (COGS) under First-in, first-out

Note : Under FIFO , total sales of 1,060 units (260 units + 800 units) are : 500 units from beginning inventory . 400 units from purchase made on Jan 30 & remaining 160 units from purchase made on May 1. Thus ending inventory consists of 400 units from purchase made on May 1

Computation of amount of ending inventory and cost of goods sold (COGS) under Last-in, first-out

Note : Under LIFO , total sales of 1,060 units are : 560 units from purchase made on May 1 , 400 units from purchase made on Jan 30 & remaining 100 units beginning inventory . Thus  ending inventory consists of 400 units from beginning inventory

Computation of amount of ending inventory and cost of goods sold (COGS) under Specific identification

Note :

First 260 units sold : [(260 units * 2 /5 * $5.00 ) + (260 units * 3 /5 * $4.40)]

= (104 units * $5) + (156 units * $4.40) = $1,206.40.

Sencond 800 units sold : [(500 units - 104 units) * $5.00] +(404 units * $6)

= (396 units * $5) + (404 units * $6) = $1,980 + $2,424 = $4,404

Thus Inventory units is : 244 units (400 - 156) from purchase made on Jan 30 & 156 units ( 560 - 404) from purchase made on May 1

Date Transaction Units Unit cost January 1, 2015 Beginning inventory 500 $5.00 January 30 Purchase 400 4.40 May 1 Purchase 560 6.00 Sale (260) $7 Sale (800) $7 Ending Inventory Units 400

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