Marvin Company has a beginning inventory of 12 sets of paints at a cost of $1.50 each. During the year, the store purchased 4 sets at $1.60, 6 sets at $2.50 and 10 sets at $3.00. By the end of the year, 25 sets were sold. Calculated (a) the number of paint sets in stock and (b) the cost of ending inventory under LIFO, FIFO, and the weighted-average methods. Round to the nearest cent for the weighted average?
To answer part (a) of the question, we need to calculate the number of paint sets in stock. We can start by summing up the purchases and subtracting the number of sets sold from the beginning inventory.
Beginning Inventory: 12 sets
Purchases:
- 4 sets at $1.60
- 6 sets at $2.50
- 10 sets at $3.00
Total Purchased: 4 + 6 + 10 = 20 sets
Sets in Stock: Beginning Inventory + Total Purchased - Sets Sold
Sets in Stock: 12 + 20 - 25 = 7 sets
Therefore, there are 7 paint sets in stock.
Now let's move on to part (b) of the question - calculating the cost of the ending inventory under LIFO (Last-In, First-Out), FIFO (First-In, First-Out), and the weighted-average methods.
LIFO Method:
Under the LIFO method, we assume that the most recent purchases are the first to be sold. Therefore, the cost of ending inventory will be based on the cost of the oldest remaining sets.
Cost of Ending Inventory (LIFO):
- Beginning Inventory: 12 sets at $1.50 = $18.00
- 7 sets from recent purchases at $3.00 = $21.00
Total Cost of Ending Inventory (LIFO): $18.00 + $21.00 = $39.00
FIFO Method:
Under the FIFO method, we assume that the oldest purchases are the first to be sold. Therefore, the cost of ending inventory will be based on the cost of the most recent sets.
Cost of Ending Inventory (FIFO):
- 7 sets from recent purchases at $3.00 = $21.00
- 8 sets from older purchases at $2.50 = $20.00
Total Cost of Ending Inventory (FIFO): $21.00 + $20.00 = $41.00
Weighted-Average Method:
Under the weighted-average method, we calculate the weighted average cost per set based on the total cost of purchases and divide it by the total number of sets.
Cost of Ending Inventory (Weighted-Average):
Total Cost of Purchases: (4 sets * $1.60) + (6 sets * $2.50) + (10 sets * $3.00) = $16.40 + $15.00 + $30.00 = $61.40
Total Sets Purchased: 4 + 6 + 10 = 20 sets
Weighted Average Cost per Set = Total Cost of Purchases / Total Sets Purchased
Weighted Average Cost per Set = $61.40 / 20 = $3.07 (rounded to two decimal places)
Cost of Ending Inventory (Weighted-Average): 7 sets * $3.07 = $21.49 (rounded to two decimal places)
Therefore, the cost of the ending inventory under LIFO is $39.00, under FIFO is $41.00, and under the weighted-average method is $21.49.