Moore Supermarket began the year with 300 boxes of oat flake cereal with a unit cost of $1.89. During the year, the following additional purchases were made:
May 1 200 boxes@$2.10/each
June 1 400 boxes@$2.20/each
August 1 250 boxes@$2.40/each
At the end of the year, Moore had 475 boxes of oat flakes on the shelf and in the back room. Assuming LIFO, calculate the (a) cost of ending inventory and (b) cost of goods sold.
To calculate the cost of ending inventory and the cost of goods sold using the Last In, First Out (LIFO) method, you need to follow these steps:
Step 1: Calculate the total cost of purchases:
- January 1: The beginning inventory is 300 boxes at a cost of $1.89 each. So, the total cost of the beginning inventory is 300 x $1.89 = $567.00.
- May 1: Moore Supermarket purchased 200 boxes at a cost of $2.10 each. So, the cost of this purchase is 200 x $2.10 = $420.00.
- June 1: Moore Supermarket purchased 400 boxes at a cost of $2.20 each. So, the cost of this purchase is 400 x $2.20 = $880.00.
- August 1: Moore Supermarket purchased 250 boxes at a cost of $2.40 each. So, the cost of this purchase is 250 x $2.40 = $600.00.
Total cost of purchases = $567.00 + $420.00 + $880.00 + $600.00 = $2,467.00.
Step 2: Calculate the cost of goods sold:
- From the information given, the number of boxes sold is 1,225 (300 beginning inventory + 200 May purchase + 400 June purchase + 250 August purchase - 475 ending inventory).
To calculate the cost of goods sold using the LIFO method, you start by using the most recent purchases first.
- August 1 purchase: Since Moore Supermarket had 475 boxes remaining at the end of the year, all 250 boxes from the August 1 purchase were sold. The cost of goods sold from this purchase is 250 x $2.40 = $600.00.
- June 1 purchase: Moore Supermarket sold 400 - 250 = 150 boxes from the June 1 purchase. The cost of goods sold from this purchase is 150 x $2.20 = $330.00.
- May 1 purchase: Moore Supermarket sold 200 - 150 = 50 boxes from the May 1 purchase. The cost of goods sold from this purchase is 50 x $2.10 = $105.00.
- January 1 (beginning inventory): Moore Supermarket sold 300 - 50 = 250 boxes from the beginning inventory. The cost of goods sold from this purchase is 250 x $1.89 = $472.50.
Total cost of goods sold = $600.00 + $330.00 + $105.00 + $472.50 = $1,507.50.
Step 3: Calculate the cost of ending inventory:
The cost of the remaining 475 boxes is calculated as follows:
- August 1 purchase: Moore Supermarket has 475 - 250 = 225 boxes from the August 1 purchase, with a cost of $2.40 each. So, the cost of the remaining boxes from this purchase is 225 x $2.40 = $540.00.
Total cost of ending inventory = $540.00.
Therefore, the (a) cost of ending inventory is $540.00 and the (b) cost of goods sold is $1,507.50.