Brenda starts a merchanding business on December 1 and enters into three invfentory purchases:
December 7 10 units @&6 cost
December 14 20 units @12 cost
December 21 15 units @ 14 cost
Brenda sells 15 units for 25.00 each on Dec 15. Eight of the sold units are from dec 7 purchase and seven are from dec 14 purchase. Brenda uses a perpetual inventory system. Determine the costs assigned to the Dec 31 ending inventory when costs are assigned based on A(FIFO),b (LIFO)c weighted average, and d(specific identification.
To determine the costs assigned to the December 31 ending inventory using different cost flow assumptions, let's go through each method step-by-step:
A. FIFO (First-In, First-Out):
1. Calculate the number of units remaining in the inventory at December 31 (units purchased - units sold):
December 7 purchase: 10 units - 8 units sold = 2 units remaining
December 14 purchase: 20 units - 7 units sold = 13 units remaining
December 21 purchase: 15 units = 15 units remaining
2. Assign costs to the remaining units based on the oldest purchase first (FIFO):
December 7 purchase: 2 units remaining * $6 cost = $12
December 14 purchase: 13 units remaining * $12 cost = $156
December 21 purchase: 15 units remaining * $14 cost = $210
Therefore, the total cost assigned to the December 31 ending inventory using FIFO is $12 + $156 + $210 = $378.
B. LIFO (Last-In, First-Out):
1. Calculate the number of units remaining in the inventory at December 31 (units purchased - units sold):
December 7 purchase: 10 units - 8 units sold = 2 units remaining
December 14 purchase: 20 units - 7 units sold = 13 units remaining
December 21 purchase: 15 units = 15 units remaining
2. Assign costs to the remaining units based on the most recent purchase first (LIFO):
December 21 purchase: 15 units remaining * $14 cost = $210
December 14 purchase: 13 units remaining * $12 cost = $156
December 7 purchase: 2 units remaining * $6 cost = $12
Therefore, the total cost assigned to the December 31 ending inventory using LIFO is $210 + $156 + $12 = $378.
C. Weighted Average:
1. Calculate the total cost of all units purchased:
December 7 purchase: 10 units * $6 cost = $60
December 14 purchase: 20 units * $12 cost = $240
December 21 purchase: 15 units * $14 cost = $210
Total cost: $60 + $240 + $210 = $510
2. Calculate the weighted average cost per unit:
Total cost / Total units purchased: $510 / (10 + 20 + 15) units = $510 / 45 units = $11.33 per unit
3. Calculate the number of units remaining in the inventory at December 31 (units purchased - units sold):
December 7 purchase: 10 units - 8 units sold = 2 units remaining
December 14 purchase: 20 units - 7 units sold = 13 units remaining
December 21 purchase: 15 units = 15 units remaining
4. Assign costs to the remaining units based on the weighted average cost:
December 7 purchase: 2 units remaining * $11.33 cost = $22.66
December 14 purchase: 13 units remaining * $11.33 cost = $146.29
December 21 purchase: 15 units remaining * $11.33 cost = $169.95
Therefore, the total cost assigned to the December 31 ending inventory using weighted average is $22.66 + $146.29 + $169.95 = $338.90.
D. Specific Identification:
Since eight of the sold units are from the December 7 purchase and seven are from the December 14 purchase, we can assign their specific costs to the ending inventory.
1. Assign costs to the remaining units based on specific identification:
2 units remaining from December 7 purchase * $6 cost = $12
13 units remaining from December 14 purchase * $12 cost = $156
15 units remaining from December 21 purchase * $14 cost = $210
Therefore, the total cost assigned to the December 31 ending inventory using specific identification is $12 + $156 + $210 = $378.
To summarize the costs assigned to the December 31 ending inventory:
- FIFO: $378
- LIFO: $378
- Weighted Average: $338.90
- Specific Identification: $378.
To determine the costs assigned to the December 31 ending inventory using different cost flow assumptions such as FIFO, LIFO, weighted average, and specific identification, we need to follow these steps:
1. Calculate the total cost of each inventory purchase:
December 7 purchase:
10 units x $6 cost per unit = $60 total cost
December 14 purchase:
20 units x $12 cost per unit = $240 total cost
December 21 purchase:
15 units x $14 cost per unit = $210 total cost
2. Calculate the cost of goods sold (COGS) for the units sold on December 15:
For FIFO:
Since FIFO assumes that the first units purchased are sold first, we assign the cost of the earliest purchases to the units sold.
Cost of goods sold from December 7 purchase: 8 units x $6 cost per unit = $48
Cost of goods sold from December 14 purchase: 7 units x $12 cost per unit = $84
Total COGS for December 15 sales: $48 + $84 = $132
3. Calculate the ending inventory quantity:
The remaining units from the December 7 purchase: 10 units - 8 units sold = 2 units
The remaining units from the December 14 purchase: 20 units - 7 units sold = 13 units
The remaining units from the December 21 purchase: 15 units
4. Calculate the ending inventory value for each cost flow assumption:
a) FIFO (First-In-First-Out) method:
Ending inventory includes the remaining units from each purchase in the order they were bought.
Ending inventory value = (2 units x $6 cost per unit) + (13 units x $12 cost per unit) + (15 units x $14 cost per unit)
= $12 + $156 + $210
= $378
b) LIFO (Last-In-First-Out) method:
LIFO assumes that the most recent units purchased are sold first. Therefore, the remaining units in the inventory are the earliest purchases.
Ending inventory value = 2 units x $6 cost per unit
= $12
c) Weighted Average method:
Weighted average is calculated by dividing the total cost of all purchases by the total number of units.
Total cost of all purchases = $60 + $240 + $210 = $510
Total number of units = 10 units + 20 units + 15 units = 45 units
Weighted average cost per unit = $510 / 45 = $11.33 (rounded to two decimal places)
Ending inventory value = (2 units + 13 units + 15 units) x $11.33 cost per unit
= 30 units x $11.33
= $339.90
d) Specific Identification method:
In the specific identification method, the actual cost of each specific item sold is assigned to the units sold. Since we know that eight units sold were from the December 7 purchase and seven units sold were from the December 14 purchase, we can calculate the cost of those units.
Cost of goods sold from December 7 purchase: 8 units x $6 cost per unit = $48
Cost of goods sold from December 14 purchase: 7 units x $12 cost per unit = $84
Ending inventory value = (2 units x $6 cost per unit) + (13 units x $12 cost per unit) + (15 units x $14 cost per unit)
= $12 + $156 + $210
= $378
So, for the given data, the costs assigned to the December 31 ending inventory are:
a) FIFO: $378
b) LIFO: $12
c) Weighted Average: $339.90
d) Specific Identification: $378