The following are data available for Blue Grass for the month of June: Sales 1,2

ID: 2499417 • Letter: T

Question

The following are data available for Blue Grass for the month of June:

Sales 1,200 units

Beginning inventory 300 units @ $4.00

600 units @ $4.20

400 units @ $4.40

500 units @ $4.50

1. The ending inventory under the FIFO cost flow assumption for Blue Grass was:

A. 2300

B. 2460

C. 2000

D. 2690

2. The ending inventory under the LIFO cost flow assumption for Blue Grass was:

A. 2690

B. 2400

C. 2460

D. 2550

3. The ending inventory under the Weighted Average cost flow assumption for Blue Grass was:

A.2757

B. 2367

C. 2677

D. 2577

Explanation / Answer

Answer:

Total Units = 1,800 Units

Sales = 1200 Units

Ending Inventory = 600 Units

1. Correct Answer is (D) $2,690

As per FIFO method, the materials are issued in the order in which they arrive in the store. The material received first are to be issued first and closing stock is value at the price of oldest purchases.

300 Units@ $4 ---- SOLD

600 Units @ $4.20 ----SOLD

300 Units @ $4.40 ---- SOLD

100 Units @ $4.40 ---- CLOSING INVENTORY

500 Units @ $4.50 --- CLOSING INVENTORY

Ending Inventory = (100 Units @ $4.40) + (500 Units @ $4.50) = $440 + $2,250 = $2,690

2. Correct Answer is (C) $2,460

As per LIFO method, the material purchased last are to be issued first & closing stock is valued at the latest stock price.

300 Units@ $4 ---- CLOSING INVENTORY

300 Units @ $4.20 ---- CLOSING INVENTORY

300 Units @ $4.20 ---- SOLD

400 Units @ $4.40 ---- SOLD

500 Units @ $4.50 ---- SOLD

Ending Inventory = (300 Units @ $4) + (300 Units @ $4.20) = $1,200 + $1,260 = $2,460

3. Correct Answer is (D) $2,577

Weighted Average Method gives due weight-age to quantities purchased and the purchase price to determine the issue price and closing inventory.

Units

Amount

Beginning Inventory

300

$4.00

$1,200.00

600

$4.20

$2,520.00

400

$4.40

$1,760.00

500

$4.50

$2,250.00

Total

1800

$7,730.00

Ending Inventory = Total Cost / Total Units x Closing Inventory = $7,730 / 1800 Units x 600 Units = $2,577