In its first month of operations, Danielle Company made three purchases of merchandise in the following sequence: (1) 161 units at $17, (2) 414 units at $18, and (3) 115 units at $19.
Assuming there are 271 units on hand, compute the cost of the ending inventory under the FIFO method and LIFO method. Danielle uses a periodic inventory system.
n its first month of operations, Whispering Winds Corp. made three purchases of merchandise in the following sequence: (1) 320 units at $4, (2) 420 units at $6, and (3) 520 units at $7. Assuming there are 220 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. Whispering Winds Corp. uses a perio
To compute the cost of the ending inventory under the FIFO (First-In, First-Out) method and LIFO (Last-In, First-Out) method, we need to determine which units were sold and which units are still in inventory based on the purchase sequence and the number of units on hand.
First, let's calculate the cost of the ending inventory under the FIFO method:
1. Determine the units sold: Since Danielle Company uses the FIFO method, we assume that the units sold are the ones purchased first. So, the units sold can be calculated as the total units purchased minus the units on hand:
Units sold = Total units purchased - Units on hand
= (161 + 414 + 115) - 271
= 690 - 271
= 419 units
2. Calculate the cost of the units sold: To calculate the cost of the units sold, we need to multiply the number of units sold by their corresponding cost:
Cost of units sold = Units sold x Cost per unit
For the above calculation, we need to determine the cost per unit for each purchase. Let's calculate it:
- Cost per unit for purchase 1 = $17
- Cost per unit for purchase 2 = $18
- Cost per unit for purchase 3 = $19
Now, we can calculate the cost of the units sold using the respective cost per unit values:
Cost of units sold = (Units sold from purchase 1 x Cost per unit from purchase 1) + (Units sold from purchase 2 x Cost per unit from purchase 2) + (Units sold from purchase 3 x Cost per unit from purchase 3)
= (161 x $17) + (258 x $18) + (0 x $19) [Note: Since all units from purchase 3 are still in inventory]
= $2737 + $4644 + $0
= $7381
3. Calculate the cost of the ending inventory: To calculate the ending inventory cost under the FIFO method, we consider the remaining units on hand at their respective costs. Since the units on hand are 271, all units are from purchase 3 with a cost of $19 per unit:
Cost of ending inventory under FIFO method = Units on hand x Cost per unit = 271 x $19 = $5149
Now, let's calculate the cost of the ending inventory under the LIFO method:
1. Determine the units sold: As per the LIFO method, we assume that the units sold are the ones purchased last. So, the units sold can be calculated as the units on hand:
Units sold = Units on hand = 271 units
2. Calculate the cost of the units sold: Similar to the FIFO method, we need to determine the cost per unit for each purchase and calculate the cost of the units sold using the respective cost per unit values:
Cost of units sold = (Units sold from purchase 1 x Cost per unit from purchase 1) + (Units sold from purchase 2 x Cost per unit from purchase 2) + (Units sold from purchase 3 x Cost per unit from purchase 3)
= (0 x $17) + (0 x $18) + (271 x $19)
= $0 + $0 + $5149
= $5149
3. Calculate the cost of the ending inventory: The remaining units on hand are assumed to be from the earliest purchase. So, all the units are from purchase 1 with a cost of $17 per unit:
Cost of ending inventory under LIFO method = Units on hand x Cost per unit = 271 x $17 = $4617
Therefore, the cost of the ending inventory under the FIFO method is $5149, and under the LIFO method, it is $4617.
To calculate the cost of the ending inventory under the FIFO (First-In, First-Out) method, we assume that the units purchased first are sold first.
First, let's calculate the cost of the ending inventory under the FIFO method:
1. Calculate the cost of the units sold:
The units sold would be calculated as the total units purchased minus the units on hand.
Units sold = Total units purchased - Units on hand = (161 + 414 + 115) - 271 = 419 units
Now, let's calculate the cost of the ending inventory using the FIFO method:
1. Calculate the cost of the units sold:
To calculate the cost of the units sold, we need to determine the cost of each unit.
Start with the first purchase:
Units purchased = 161 units
Cost per unit = $17
Cost of units sold from the first purchase = Units sold * Cost per unit = 161 units * $17 = $2,737
Next, move to the second purchase:
Units purchased = 414 units
Cost per unit = $18
Cost of units sold from the second purchase = (Units sold - Units sold from the first purchase) * Cost per unit = (419 - 161) * $18 = 139 units * $18 = $2,502
Finally, for the third purchase:
Units purchased = 115 units
Cost per unit = $19
Cost of units sold from the third purchase = (Units sold - Units sold from the first and second purchases) * Cost per unit = (419 - 161 - 139) * $19 = 119 units * $19 = $2,261
Total cost of units sold = Cost of units sold from the first purchase + Cost of units sold from the second purchase + Cost of units sold from the third purchase
= $2,737 + $2,502 + $2,261 = $7,500
2. Calculate the cost of the ending inventory:
The cost of the ending inventory is the cost of the remaining units after the units sold have been deducted from the total units purchased.
Remaining units = Total units purchased - Units sold = (161 + 414 + 115) - 419 = 271 units
Remaining cost per unit = Cost per unit of the last purchase = $19
Cost of the ending inventory = Remaining units * Remaining cost per unit = 271 units * $19 = $5,149
Therefore, the cost of the ending inventory under the FIFO method is $5,149.
Now, let's calculate the cost of the ending inventory under the LIFO (Last-In, First-Out) method.
Under the LIFO method, we assume that the units purchased last are sold first.
1. Calculate the cost of the units sold:
Using the same calculation as before, the units sold would be 419 units.
2. Calculate the cost of the ending inventory:
To calculate the cost of the ending inventory using the LIFO method, we need to determine the cost of each unit.
Start with the last purchase:
Units purchased = 115 units
Cost per unit = $19
Cost of units sold from the last purchase = Units sold * Cost per unit = 419 units * $19 = $7,961
Finally, for the second purchase:
Units purchased = 414 units
Cost per unit = $18
Cost of units sold from the second purchase = (Units purchased - Units sold from the last purchase) * Cost per unit = (414 - 115) * $18 = 299 units * $18 = $5,382
Total cost of units sold = Cost of units sold from the last purchase + Cost of units sold from the second purchase
= $7,961 + $5,382 = $13,343
Cost of the ending inventory = Total cost of units purchased - Total cost of units sold
= (161 units * $17) + (414 units * $18) + (115 units * $19) - $13,343
= $4,379 + $7,452 + $2,185 - $13,343
= $554
Therefore, the cost of the ending inventory under the LIFO method is $554.