Based on the information below what would the ending inventory and the cost of g
ID: 2511262 • Letter: B
Question
Based on the information below what would the ending inventory and the cost of goods sold be for Gargleblaster Inc (GI) under the following cost flow assumptions?
Ending Inventory Cost of Goods Sold
1. LIFO(periodic inventory method) $ $
2. FIFO(periodic inventory method) $ $
3. LIFO (perpetual inventory method) $ $
4. FIFO(perpetual inventory method) $ $
Quantity Cost per Unit Total
Beginning Inventory 200 units $10 2,000
January Purchases 300 units $12 3,600
March Purchases 500 units $15 7,500
August Purchases 500 units $15 7,500
December Purchases 200 units $20 4,000
1,700 units 24,600
There were 1,200 units sold during the year, half in May, and the others in September. No units were lost, stolen, or spoiled.
Explanation / Answer
Solution:
Periodic Inventory System
Periodic Inventory system is a system of inventory in which inventories are updated on a periodic basis. Periodic basis may be monthly, quarterly, weekly, half yearly or yearly. In this system, inventories are not kept up to date.
Part 1 --- Last in First Out (LIFO) - Periodic
LIFO method says the newest units in stock are issued or sold first.
Hence, the recently purchased units are sold first.
LIFO - Periodic method
Units
$/Unit
$$
Beginning Inventory
200
$10.00
$2,000
Purchases
January
300
$12.00
$3,600
March
500
$15.00
$7,500
August
500
$15.00
$7,500
December
200
$20.00
$4,000
Cost of Goods Available for Sale (A)
1700
$24,600
Cost of Goods Sold:
Units Sold from Beginning Inventory
0
$10.00
$0
Units Sold from Purchases January
0
$12.00
$0
Units Sold from Purchases March
500
$15.00
$7,500
Units Sold from Purchases August
500
$15.00
$7,500
Units Sold from Purchases December
200
$20.00
$4,000
Total Cost of Goods Sold (B)
1200
$19,000
Ending Inventory (A - B)
500
$5,600
Cost of Goods Sold LIFO - Periodic = $19,000
Ending Inventory LIFO – Periodic = $5,600
Part 2 -- FIFO Periodic Method
FIFO method says the oldest units in stock are issued or sold first.
FIFO - Periodic method
Units
$/Unit
$$
Beginning Inventory
200
$10.00
$2,000
Purchases
January
300
$12.00
$3,600
March
500
$15.00
$7,500
August
500
$15.00
$7,500
December
200
$20.00
$4,000
Cost of Goods Available for Sale (A)
1700
$24,600
Cost of Goods Sold:
Units Sold from Beginning Inventory
200
$10.00
$2,000
Units Sold from Purchases January
300
$12.00
$3,600
Units Sold from Purchases March
500
$15.00
$7,500
Units Sold from Purchases August
200
$15.00
$3,000
Units Sold from Purchases December
0
$20.00
$0
Total Cost of Goods Sold (B)
1200
$16,100
Ending Inventory (A - B)
500
$8,500
Cost of Ending Inventory FIFO – Periodic = $16,100
Cost of Goods Sold FIFO – Periodic = $8,500
Part 3 – LIFO (perpetual inventory method)
Under perpetual system, inventory is updated after each transaction whether sale or purchase of units.
Perpetual LIFO:
Goods Purchased
Cost of Goods Sold
Inventory Balance
# of units
Unit Cost
Cost per unit
# of units
Cost per unit
Cost of goods sold
# of units
Cost per unit
Inventory Balance
Beginning Inventory
200
$10
$2,000
January Purchases
300
$12
$3,600
200
$10
$2,000
300
$12
$3,600
500
$5,600
March Purchases
500
$15
$7,500
200
$10
$2,000
300
$12
$3,600
500
$15
$7,500
1000
$13,100
Sales May
500
$15
$7,500
200
$10
$2,000
100
$12
$1,200
200
$12
$2,400
600
$8,700
400
$4,400
August Purchases
500
$15
$7,500
200
$10
$2,000
200
$12
$2,400
500
$15
$7,500
900
$11,900
December Purchases
200
$20
$4,000
200
$10
$2,000
200
$12
$2,400
500
$15
$7,500
200
$20
$4,000
1100
$15,900
Sales December
200
$20
$4,000
200
10
$2,000
400
$15
$6,000
200
12
$2,400
600
$10,000
100
15
$1,500
500
$5,900
TOTAL
1200
$18,700
Cost of Goods Sold LIFO – Perpetual = $18,700
Ending Inventory LIFO – Perpetual = $5,900
Part 4 – FIFO (perpetual inventory method)
Perpetual FIFO:
Goods Purchased
Cost of Goods Sold
Inventory Balance
# of units
Unit Cost
Cost per unit
# of units
Cost per unit
Cost of goods sold
# of units
Cost per unit
Inventory Balance
Beginning Inventory
200
$10
$2,000
January Purchases
300
$12
$3,600
200
$10
$2,000
300
$12
$3,600
500
$5,600
March Purchases
500
$15
$7,500
200
$10
$2,000
300
$12
$3,600
500
$15
$7,500
1000
$13,100
Sales May
200
$10
$2,000
300
$12
$3,600
100
$15
$1,500
400
$15
$6,000
600
$7,100
August Purchases
500
$15
$7,500
400
$15
$6,000
500
$15
$7,500
900
$13,500
December Purchases
200
$20
$4,000
400
$15
$6,000
500
$15
$7,500
200
$20
$4,000
1100
$17,500
Sales December
400
$15
$6,000
200
$15
$3,000
300
$15
$4,500
600
$9,000
200
$20
$4,000
500
$8,500
TOTAL
1200
$16,100
Cost of Goods Sold FIFO – Perpetual = $16,100
Ending Inventory FIFO – Perpetual = $8,500
Summary of answers as follows:
Cost of Goods Sold
Ending Inventory
1)
LIFO - Periodic
$19,000
$5,600
2)
FIFO - Periodic
$16,100
$8,500
3)
LIFO - Perpetual
$18,700
$5,900
4)
FIFO - Perpetual
$16,100
$8,500
LIFO - Periodic method
Units
$/Unit
$$
Beginning Inventory
200
$10.00
$2,000
Purchases
January
300
$12.00
$3,600
March
500
$15.00
$7,500
August
500
$15.00
$7,500
December
200
$20.00
$4,000
Cost of Goods Available for Sale (A)
1700
$24,600
Cost of Goods Sold:
Units Sold from Beginning Inventory
0
$10.00
$0
Units Sold from Purchases January
0
$12.00
$0
Units Sold from Purchases March
500
$15.00
$7,500
Units Sold from Purchases August
500
$15.00
$7,500
Units Sold from Purchases December
200
$20.00
$4,000
Total Cost of Goods Sold (B)
1200
$19,000
Ending Inventory (A - B)
500
$5,600
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