Using a perpetual system, how do I determine the FIFO,LIFO, weighted average, and specific identification.
Dec. 7, 10 units @ 6.00, Dec 14 20units @ 12.00, and Dec 21. 15 units @ 14.00 cost. trader sells 15 units for 25 each on December 15. Eight of the sold units are from the Dec purchase and seven are from the Dec 14 purchase. Trader uses a perpetual inventory system. Determine the costs assigned to the Dec. 31 ending inventory when costs are assigned.
To determine the costs assigned to the December 31 ending inventory using the FIFO (First-In, First-Out), LIFO (Last-In, First-Out), weighted average, and specific identification methods, here's what you need to do:
1. FIFO (First-In, First-Out):
- In FIFO, you assume that the first items purchased are the first ones sold. Therefore, the cost of the ending inventory is based on the latest purchases.
- Calculate the cost of goods sold (COGS) for the 15 units sold on December 15 using the FIFO method:
- 8 units from the December 7 purchase: 8 units x $6.00 per unit = $48.00
- 7 units from the December 14 purchase: 7 units x $12.00 per unit = $84.00
- COGS = $48.00 + $84.00 = $132.00
- Calculate the ending inventory cost by subtracting the COGS from the purchases after December 15:
- 17 units remaining from the December 14 and December 21 purchases: 17 units x $14.00 per unit = $238.00
2. LIFO (Last-In, First-Out):
- In LIFO, you assume that the last items purchased are the first ones sold. Therefore, the cost of the ending inventory is based on the earliest purchases.
- Calculate the COGS for the 15 units sold on December 15 using the LIFO method:
- 7 units from the December 14 purchase: 7 units x $12.00 per unit = $84.00
- 8 units from the December 7 purchase: 8 units x $6.00 per unit = $48.00
- COGS = $84.00 + $48.00 = $132.00
- Calculate the ending inventory cost by subtracting the COGS from the purchases after December 15:
- 17 units remaining from the December 21 purchase: 17 units x $14.00 per unit = $238.00
3. Weighted Average:
- In the weighted average method, you calculate the average cost per unit of all items purchased, including those sold and in the ending inventory.
- Calculate the weighted average cost per unit:
- Total cost for all purchases: (10 units x $6.00 per unit) + (20 units x $12.00 per unit) + (15 units x $14.00 per unit) = $336.00
- Total units purchased: 45 units
- Weighted average cost per unit = $336.00 / 45 units = $7.47 per unit
- Calculate the COGS for the 15 units sold on December 15 using the weighted average cost per unit:
- COGS = 15 units x $7.47 per unit = $112.05
- The ending inventory cost is determined by multiplying the remaining units by the weighted average cost per unit:
- 30 units remaining from the December 14 and December 21 purchases: 30 units x $7.47 per unit = $224.10
4. Specific Identification:
- In specific identification, you identify which specific units were sold and consider their individual costs.
- Since the specific units sold are provided (8 from Dec. 7 purchase and 7 from Dec. 14 purchase), you can simply calculate the total cost of the sold units using their respective costs:
- 8 units from Dec. 7 purchase: 8 units x $6.00 per unit = $48.00
- 7 units from Dec. 14 purchase: 7 units x $12.00 per unit = $84.00
- COGS = $48.00 + $84.00 = $132.00
- The ending inventory cost is calculated by multiplying the remaining units by their respective costs:
- 17 units remaining from the December 21 purchase: 17 units x $14.00 per unit = $238.00
Therefore, the costs assigned to the December 31 ending inventory for each method are as follows:
- FIFO: $238.00
- LIFO: $238.00
- Weighted Average: $224.10
- Specific Identification: $238.00