Assigning costs to inventory-perpetual symstem. Dec. 7 10 units @ $6
Dec. 14 20 units @ $12
Dec. 21 @ $14
Trader sells 15 units for $25 each on Dec,15 eight of the sold units are from Dec. 7 purchase and seven are from Dec. 14 purchase. Determine the costs assigned to Dec.31 ending inventory when costs are assigned based on (a) FIFO, (b) LIFO, (c) weighted average, and (d) specific indenification.Can anybody please explain how to do this? Please I'm very confused.
To determine the costs assigned to the December 31 ending inventory using different cost assignment methods, we need to calculate the cost of the units sold first. Then we can calculate the cost of the remaining inventory using each method. Here is the step-by-step process for each cost assignment method:
(a) FIFO (First-In-First-Out):
1. Identify the units sold. The trader sold 15 units on December 15, eight units from the December 7 purchase, and seven units from the December 14 purchase.
2. Calculate the cost of the units sold.
For the eight units from the December 7 purchase:
Cost = 8 units x $6 = $48
For the seven units from the December 14 purchase:
Cost = 7 units x $12 = $84
The total cost of the units sold is $48 + $84 = $132.
3. Calculate the cost of the remaining inventory.
From the December 7 purchase, there are 2 units left (10 initial units - 8 units sold).
Cost = 2 units x $6 = $12
From the December 14 purchase, there are 13 units left (20 initial units - 7 units sold).
Cost = 13 units x $12 = $156
The total cost of the remaining inventory is $12 + $156 = $168.
(b) LIFO (Last-In-First-Out):
1. Identify the units sold. Same as in FIFO, eight units from the December 7 purchase and seven units from the December 14 purchase were sold.
2. Calculate the cost of the units sold.
For the seven units from the December 14 purchase:
Cost = 7 units x $12 = $84
For the eight units from the December 7 purchase:
Cost = 8 units x $6 = $48
The total cost of the units sold is $84 + $48 = $132.
3. Calculate the cost of the remaining inventory.
From the December 7 purchase, there are 2 units left (10 initial units - 8 units sold).
Cost = 2 units x $6 = $12
From the December 14 purchase, there are 13 units left (20 initial units - 7 units sold).
Cost = 13 units x $12 = $156
The total cost of the remaining inventory is $12 + $156 = $168.
(c) Weighted Average:
1. Calculate the weighted average cost per unit.
Total cost of all units = (10 units x $6) + (20 units x $12) + (8 units x $14) = $60 + $240 + $112 = $412
Total number of units = 10 units + 20 units + 8 units = 38 units
Weighted average cost per unit = Total cost of all units / Total number of units = $412 / 38 = $10.84 (rounded to two decimal places)
2. Calculate the cost of the units sold.
For the 15 units sold:
Cost = 15 units x $10.84 = $162.60
3. Calculate the cost of the remaining inventory.
From the December 7 purchase, there are 2 units left (10 initial units - 8 units sold).
Cost = 2 units x $10.84 = $21.68 (rounded to two decimal places)
From the December 14 purchase, there are 13 units left (20 initial units - 7 units sold).
Cost = 13 units x $10.84 = $140.92 (rounded to two decimal places)
The total cost of the remaining inventory is $21.68 + $140.92 = $162.60.
(d) Specific Identification:
In specific identification, each unit sold is matched with the specific cost of the purchase in which it was acquired. Therefore, the cost of the remaining inventory cannot be determined without knowing the specific units sold.
In this method, you would need to determine which specific units were sold on December 15 and apply their respective costs to the remaining inventory.
To determine the costs assigned to the December 31 ending inventory using different inventory costing methods (FIFO, LIFO, weighted average, and specific identification), we need to understand how each method works and then apply them step by step to the given information.
1. FIFO (First-In, First-Out):
FIFO assumes that the first units purchased are the first ones sold, and the ending inventory consists of the most recently purchased units.
In this case, we first assign the cost of the 10 units purchased on December 7 ($6 each) and then the remaining 10 units from the December 14 purchase ($12 each). The cost of the ending inventory would be based on the December 21 purchase.
2. LIFO (Last-In, First-Out):
LIFO assumes that the last units purchased are the first ones sold, and the ending inventory consists of the earliest purchased units.
Here, we first assign the cost of the 20 units purchased on December 14 ($12 each) and then the remaining 10 units from the December 7 purchase ($6 each). The cost of the ending inventory would be based on the December 7 purchase.
3. Weighted Average:
Weighted average calculates the average cost per unit by dividing the total cost of inventory by the total number of units.
First, we need to calculate the total cost and the total units purchased. The total cost would be (10 units * $6) + (20 units * $12) + (Additional units * $14) for each respective purchase. The total units would be 10 units + 20 units + Additional units.
Then, we divide the total cost by the total units to get the average cost per unit. Multiply this average cost by the units sold to determine the cost of units sold. The remaining units would be assigned the weighted average cost.
4. Specific Identification:
Specific Identification traces the cost of each individual unit sold to the corresponding purchase cost.
In this case, eight units from the December 7 purchase and seven units from the December 14 purchase have been sold. So, we assign the cost of these sold units based on their respective purchase cost. The cost of the ending inventory would be based on the remaining units, considering their specific purchase cost.
Following these steps, you can determine the costs assigned to the December 31 ending inventory using each of the four methods mentioned.