Cost flow assumptions for FIFO and LIFO using a periodic system.

Question 1. Sales during the year were 700 units. Beginning inventory was 400 units at a cost of $10.00 per unit. Purchase 1 was 500 units at $12.00 per unit. Purchase 2 was 300 units at $14.00 per unit.

Required: Calculate cost of goods sold and ending inventory under the following cost flow assumptions(using a periodic inventory system):
a. FIFO
b. LIFO

To calculate the cost of goods sold and ending inventory under the FIFO (First-In, First-Out) and LIFO (Last-In, First-Out) cost flow assumptions using a periodic inventory system, we need to follow these steps:

1. Identify the cost of the units sold during the year by applying the cost flow assumptions.

2. Calculate the cost of the remaining units in ending inventory by applying the cost flow assumptions.

Let's calculate the cost of goods sold (COGS) and ending inventory under the FIFO and LIFO assumptions using the provided information.

FIFO Assumption:
Under the FIFO assumption, the items purchased first (oldest) are assumed to be sold first.

Step 1: Calculate the cost of goods sold (COGS) under FIFO:
Sales during the year = 700 units
Beginning inventory = 400 units at $10.00 per unit
Purchase 1 = 500 units at $12.00 per unit
Purchase 2 = 300 units at $14.00 per unit

To calculate the cost of goods sold (COGS) under FIFO, we start from the beginning inventory and allocate the costs of the oldest units first.

a. Allocate the cost of the beginning inventory:
COGS = 400 units (beginning inventory) * $10.00 per unit = $4,000.00

b. Allocate the cost of Purchase 1:
COGS = 300 units (remaining sales) * $12.00 per unit = $3,600.00

Total COGS under FIFO = $4,000.00 + $3,600.00 = $7,600.00

Step 2: Calculate the ending inventory under FIFO:
To calculate the ending inventory under FIFO, we allocate the costs of the most recent purchases that are still in stock.

Ending inventory = 200 units (remaining units after sales) * $14.00 per unit = $2,800.00

LIFO Assumption:
Under the LIFO assumption, the items purchased most recently (newest) are assumed to be sold first.

Step 1: Calculate the COGS under LIFO:
To calculate the COGS under LIFO, we start from the most recent purchase and work backward.

a. Allocate the cost of Purchase 2:
COGS = 300 units (sales) * $14.00 per unit = $4,200.00

b. Allocate the cost of Purchase 1:
COGS = 400 units (remaining sales) * $12.00 per unit = $4,800.00

Total COGS under LIFO = $4,200.00 + $4,800.00 = $9,000.00

Step 2: Calculate the ending inventory under LIFO:
To calculate the ending inventory under LIFO, we allocate the costs of the oldest purchases that are still in stock.

Ending inventory = 300 units (remaining units after sales) * $10.00 per unit = $3,000.00

In summary:
a. Under the FIFO assumption:
- Cost of goods sold (COGS) = $7,600.00
- Ending inventory = $2,800.00

b. Under the LIFO assumption:
- Cost of goods sold (COGS) = $9,000.00
- Ending inventory = $3,000.00