Please help
Tevin Trader starts a merchandising business on December 1 and enters into three inventory purchases.
December 7 10 units @ $6 cost
December 14 20 units @ $12 cost
December 21 15 units @ $14 cost
Trader sells 15 units for $25 each on December 15. Eight of the sold units are from the December 7 purchase and seven are from the December 14 purchase. Trader uses a perpetual inventory system. Determine the costs assigned to the December 31 ending inventory when costs are assigned based on (a) FIFO, (b) LIFO, (c) weighted average, and (d) specific identification.
Check ( c ) $360.
I am also stuck on this.
To determine the costs assigned to the December 31 ending inventory using the different cost flow methods, we need to calculate the cost of the remaining inventory units for each method.
Let's break it down step by step:
1. FIFO (First-In, First-Out)
Under FIFO, the assumption is that the earliest units purchased are the first ones sold. Therefore, the costs assigned to the ending inventory will be based on the most recent purchases.
a. Determine the units sold:
From the December 7 purchase, 8 units were sold.
From the December 14 purchase, 7 units were sold.
Total units sold = 8 + 7 = 15 units.
b. Determine the remaining units in inventory:
From the December 7 purchase, there are 10 - 8 = 2 units left.
From the December 14 purchase, there are 20 - 7 = 13 units left.
From the December 21 purchase, there are 15 units left.
c. Calculate the cost of the remaining inventory:
Cost of 2 units from December 7 purchase = 2 x $6 = $12
Cost of 13 units from December 14 purchase = 13 x $12 = $156
Cost of 15 units from December 21 purchase = 15 x $14 = $210
Total cost of the remaining inventory = $12 + $156 + $210 = $378
Therefore, the cost assigned to the December 31 ending inventory using FIFO is $378.
2. LIFO (Last-In, First-Out)
Under LIFO, the assumption is that the most recent units purchased are the first ones sold. Therefore, the costs assigned to the ending inventory will be based on the earliest purchases.
a. Determine the units sold:
From the December 7 purchase, 8 units were sold.
From the December 14 purchase, 7 units were sold.
Total units sold = 8 + 7 = 15 units.
b. Determine the remaining units in inventory:
From the December 7 purchase, there are 10 - 8 = 2 units left.
From the December 14 purchase, there are 20 - 7 = 13 - 2 = 11 units left.
From the December 21 purchase, there are 15 units left.
c. Calculate the cost of the remaining inventory:
Cost of 2 units from December 7 purchase = 2 x $6 = $12
Cost of 11 units from December 14 purchase = 11 x $12 = $132
Cost of 15 units from December 21 purchase = 15 x $14 = $210
Total cost of the remaining inventory = $12 + $132 + $210 = $354
Therefore, the cost assigned to the December 31 ending inventory using LIFO is $354.
3. Weighted Average
Under the weighted average method, the costs assigned to the ending inventory are calculated by taking the weighted average of all the units purchased.
a. Calculate the total cost of all units purchased:
Cost of 10 units from December 7 purchase = 10 x $6 = $60
Cost of 20 units from December 14 purchase = 20 x $12 = $240
Cost of 15 units from December 21 purchase = 15 x $14 = $210
b. Calculate the total number of units purchased:
Total units purchased = 10 + 20 + 15 = 45 units
c. Calculate the weighted average cost per unit:
Total cost of all units purchased = $60 + $240 + $210 = $510
Weighted average cost per unit = $510 / 45 units = $11.33 (rounded to 2 decimal places)
d. Determine the units sold:
From the December 7 purchase, 8 units were sold.
From the December 14 purchase, 7 units were sold.
Total units sold = 8 + 7 = 15 units.
e. Determine the remaining units in inventory:
Total units purchased = 45 units
Units sold = 15 units
Remaining units in inventory = Total units purchased - Units sold = 45 - 15 = 30 units
f. Calculate the cost of the remaining inventory:
Cost of the remaining 30 units = 30 units x $11.33 = $339.90 (rounded to 2 decimal places)
Therefore, the cost assigned to the December 31 ending inventory using weighted average is $339.90.
4. Specific Identification
Under specific identification, the cost assigned to the ending inventory is determined based on the actual cost of each individual unit sold.
a. Determine the units sold:
From the December 7 purchase, 8 units were sold.
From the December 14 purchase, 7 units were sold.
Total units sold = 8 + 7 = 15 units.
b. Determine the remaining units in inventory:
From the December 7 purchase, there are 10 - 8 = 2 units left.
From the December 14 purchase, there are 20 - 7 = 13 units left.
From the December 21 purchase, there are 15 units left.
c. Calculate the cost of the remaining inventory based on the specific unit costs:
Cost of 2 units from December 7 purchase = 2 x $6 = $12
Cost of 13 units from December 14 purchase = 13 x $12 = $156
Cost of 15 units from December 21 purchase = 15 x $14 = $210
Total cost of the remaining inventory = $12 + $156 + $210 = $378
Therefore, the cost assigned to the December 31 ending inventory using specific identification is $378.
Based on the calculations, it seems there is an inconsistency with the provided answer for the weighted average method. The correct answer for the cost assigned to the December 31 ending inventory using the weighted average method should be $339.90 instead of $360.
I hope this helps you in understanding how to determine the costs assigned to the December 31 ending inventory using different cost flow methods.