In its first month of operations, Cisler Company made three purchases of merchandise in the following sequence:
(1) 300 units at $6,
(2) 400 units at $8, and
(3) 500 units at $9.
Assuming there are 200 units on hand at the end of the period, compute the cost of the ending inventory under
(a) The FIFO method and
(b) The LIFO method. Cisler uses a periodic inventory system.
I don't understand this method, so please help?
ndhvdaj,vfajvbkdfahbv
Sure, I can help explain the FIFO and LIFO methods of calculating the cost of ending inventory in a periodic inventory system.
In a periodic inventory system, the cost of inventory is determined at the end of the accounting period, rather than continuously tracking it for each transaction. Both FIFO (First-In, First-Out) and LIFO (Last-In, First-Out) are methods used to allocate costs to the remaining inventory at the end of the period.
FIFO Method:
Under the FIFO method, it is assumed that the first items purchased are the first ones sold. This means that the cost of the most recent purchases is allocated to the ending inventory.
To calculate the cost of ending inventory using the FIFO method in this case:
1. Calculate the total costs for each purchase:
(1) 300 units at $6 = $1,800
(2) 400 units at $8 = $3,200
(3) 500 units at $9 = $4,500
2. Determine the number of units sold:
The total units purchased are 300 + 400 + 500 = 1,200.
Given that 200 units are left at the end of the period, the units sold would be 1,200 - 200 = 1,000.
3. Allocate the cost of the ending inventory:
Since the first 300 units cost $6 each, the cost is 300 * $6 = $1,800.
The next 400 units cost $8 each, so the cost is 400 * $8 = $3,200.
Therefore, the cost of the ending inventory using the FIFO method is $1,800 + $3,200 = $5,000.
LIFO Method:
Under the LIFO method, it is assumed that the most recent items purchased are the first ones sold. This means that the cost of the earliest purchases is allocated to the ending inventory.
To calculate the cost of ending inventory using the LIFO method in this case:
1. Calculate the total costs for each purchase (as mentioned above).
2. Determine the number of units sold (as mentioned above).
3. Allocate the cost of the ending inventory:
Since the last 500 units were purchased at $9 each, the cost is 500 * $9 = $4,500.
The next 200 units would be from the previous purchase of 400 units at $8 each, so the cost is 200 * $8 = $1,600.
Therefore, the cost of the ending inventory using the LIFO method is $4,500 + $1,600 = $6,100.
In summary, the cost of the ending inventory under the FIFO method is $5,000, while under the LIFO method, it is $6,100.