Date Activities Units Acquired at Cost Units Sold at Retail
Mar. 1 Beginning inventory 50 units @ $50/unit
Mar. 5 Purchase 200 units @ $55/unit
Mar. 9 Sales 210 units @ $85/unit
Mar. 18 Purchase 60 units @ $60/unit
Mar. 25 Purchase 100 units @ $62/unit
Mar. 29 Sales 80 units @ $95/unit
Totals 410 units 290 units
Information given:
Compute the cost assigned to ending inventory using (a) FIFO, (b) LIFO, (c) weighted average, and (d) specific identification. For specific identification, the March 9 sale consisted of 40 units from beginning inventory and 170 units from the March 5 purchase; the March 29 sale consisted of 20 units from the March 18 purchase and 60 units from the March 25 purchase.
To compute the cost assigned to ending inventory using different costing methods, follow these steps:
(a) FIFO (First In, First Out):
1. Determine the remaining inventory not sold at the end of the period.
2. Assign the cost of the earliest units acquired (first in) to the remaining inventory.
(b) LIFO (Last In, First Out):
1. Determine the remaining inventory not sold at the end of the period.
2. Assign the cost of the most recent units acquired (last in) to the remaining inventory.
(c) Weighted Average:
1. Calculate the weighted average cost per unit.
Total Cost = (Beginning Inventory Cost + Purchases Cost) / (Beginning Inventory Units + Purchased Units)
Weighted Average Cost per Unit = Total Cost / (Beginning Inventory Units + Purchased Units)
2. Multiply the weighted average cost per unit by the remaining units in inventory.
(d) Specific Identification:
1. Determine the remaining inventory not sold at the end of the period.
2. Calculate the cost of each specific item left in inventory using their respective purchase costs.
3. Sum up the costs of all specific items to get the total cost of the remaining inventory.
Now, let's calculate the cost assigned to ending inventory using each method:
(a) FIFO (First In, First Out):
Beginning Inventory: 50 units @ $50/unit = $2,500
Remaining Inventory: 120 units (200 - 40 - 20) @ $55/unit = $6,600
Total Cost Assigned to Ending Inventory (FIFO) = $2,500 + $6,600 = $9,100
(b) LIFO (Last In, First Out):
Remaining Inventory: 120 units (200 - 40 - 20)
Last Purchase: 100 units @ $62/unit
Remaining Inventory Cost = Last Purchase Units x Last Purchase Unit Cost = 120 units x $62/unit = $7,440
Total Cost Assigned to Ending Inventory (LIFO) = $7,440
(c) Weighted Average:
Total Cost = ($2,500 + $11,000) = $13,500
Weighted Average Cost per Unit = $13,500 / (50 + 200) = $42.8571 per unit
Remaining Inventory: 120 units
Total Cost Assigned to Ending Inventory (Weighted Average) = 120 units x $42.8571/unit = $5,142.86
(d) Specific Identification:
Remaining Inventory: 120 units
Cost of Remaining Inventory:
- 40 units (from beginning inventory) x $50/unit = $2,000
- 80 units (from March 5 purchase) x $55/unit = $4,400
Total Cost Assigned to Ending Inventory (Specific Identification) = $2,000 + $4,400 = $6,400
To summarize, the cost assigned to ending inventory using different costing methods are:
(a) FIFO: $9,100
(b) LIFO: $7,440
(c) Weighted Average: $5,142.86
(d) Specific Identification: $6,400
To compute the cost assigned to ending inventory using different methods, we'll need to calculate the cost of units sold and the cost of units remaining in inventory for each method.
(a) FIFO (First-In, First-Out):
In this method, we assume that the first units acquired are the first to be sold. To compute the cost of the ending inventory using FIFO, follow these steps:
1. Determine the cost of units sold:
- On March 9, 210 units were sold. We start by selling the 50 units from the beginning inventory, which were acquired at a cost of $50 per unit. The remaining 160 units are from the March 5 purchase and were acquired at a cost of $55 per unit.
- The cost of units sold is (50 units × $50/unit) + (160 units × $55/unit).
2. Determine the cost of units remaining in inventory:
- After the sales on March 9, there are 410 units - 210 units = 200 units remaining in inventory.
- These 200 units are the 40 units from the beginning inventory and 160 units from the March 5 purchase.
(b) LIFO (Last-In, First-Out):
In this method, we assume that the most recently acquired units are the first to be sold. To compute the cost of the ending inventory using LIFO, follow these steps:
1. Determine the cost of units sold:
- On March 9, 210 units were sold. We start by selling the 170 units from the March 5 purchase, which were acquired at a cost of $55 per unit. The remaining 40 units are from the beginning inventory and were acquired at a cost of $50 per unit.
- The cost of units sold is (170 units × $55/unit) + (40 units × $50/unit).
2. Determine the cost of units remaining in inventory:
- After the sales on March 9, there are 410 units - 210 units = 200 units remaining in inventory.
- These 200 units are the 160 units from the March 5 purchase and 40 units from the beginning inventory.
(c) Weighted Average:
In this method, we calculate the average cost per unit based on the units acquired and use that average cost to allocate the cost to the units sold and remaining in inventory. To compute the cost of the ending inventory using the weighted average method, follow these steps:
1. Calculate the weighted average cost per unit:
- Add up the total cost of all units acquired: (50 units × $50/unit) + (200 units × $55/unit) + (60 units × $60/unit) + (100 units × $62/unit).
- Divide the total cost by the total units acquired: ($amount_total / total_units).
2. Determine the cost of units sold:
- On March 9, 210 units were sold. We calculate the cost of these units by multiplying the weighted average cost per unit by the number of units sold.
3. Determine the cost of units remaining in inventory:
- After the sales on March 9, there are 410 units - 210 units = 200 units remaining in inventory.
(d) Specific Identification:
In this method, we individually track the cost of each unit sold and remaining in inventory.
1. Calculate the cost of units sold:
- For the March 9 sale, 40 units are from the beginning inventory (costing $50 per unit) and 170 units are from the March 5 purchase (costing $55 per unit). Multiply the cost per unit by the respective number of units and add them to get the total cost of units sold.
2. Determine the cost of units remaining in inventory:
- After the sales on March 9 and March 29, there are 290 units remaining in inventory.
- For the March 29 sale, 20 units are from the March 18 purchase (costing $60 per unit) and 60 units are from the March 25 purchase (costing $62 per unit). Multiply the cost per unit by the respective number of units and add them to get the total cost of remaining units in inventory.
By following these steps for each method, you can compute the cost assigned to ending inventory.