Beginning inventory 600 units @ $ 10
Purchases ( in order
from first to last) 1,000 units @ $11
900 units @ $ 12
700 units @ $ 14
Sales for the period were 1,900 units
A) Compute the inventory balance and the cost of goods sold at the end of the accounting period using average cost, FIFO, and LIFO.
B) which method shows the highest ending inventory?
C) which method shows the highest cost of goods sold?
To compute the inventory balance and the cost of goods sold at the end of the accounting period using average cost, FIFO, and LIFO, you will need to perform the following calculations:
A) Average Cost Method:
1. Calculate the total cost of the beginning inventory: Beginning Inventory Units * Beginning Inventory Cost = 600 units * $10 = $6,000.
2. Calculate the total cost of purchases:
- First purchase: 1,000 units * $11 = $11,000
- Second purchase: 900 units * $12 = $10,800
- Third purchase: 700 units * $14 = $9,800
Total cost of purchases = $11,000 + $10,800 + $9,800 = $31,600.
3. Calculate the weighted average cost per unit:
Total cost of beginning inventory and purchases / Total units of beginning inventory and purchases
= ($6,000 + $31,600) / (600 units + 1,000 units + 900 units + 700 units) = $37,600 / 3,200 units = $11.75 per unit.
4. Calculate the cost of goods sold:
Cost of goods sold = Units sold * Weighted average cost per unit
= 1,900 units * $11.75 = $22,325.
5. Calculate the ending inventory balance:
Ending inventory balance = Beginning inventory + Purchases - Cost of goods sold
= $6,000 + $31,600 - $22,325 = $15,275.
B) FIFO (First-In, First-Out) Method:
1. Calculate the cost of goods sold for the units sold first:
Cost of goods sold = Units sold * Cost of oldest units in inventory
= 1,900 units * $10 = $19,000.
2. Calculate the ending inventory balance:
Ending inventory balance = Beginning inventory + Purchases - Cost of goods sold
= $6,000 + $31,600 - $19,000 = $18,600.
C) LIFO (Last-In, First-Out) Method:
1. Calculate the cost of goods sold for the units sold first:
Cost of goods sold = Units sold * Cost of most recent units in inventory
= 1,900 units * $14 = $26,600.
2. Calculate the ending inventory balance:
Ending inventory balance = Beginning inventory + Purchases - Cost of goods sold
= $6,000 + $31,600 - $26,600 = $11,000.
B) FIFO method shows the highest ending inventory balance, which is $18,600.
C) LIFO method shows the highest cost of goods sold, which is $26,600.