Question

Gaga Fashions uses a periodic inventory system. The beginning inventory of a particular product, and the...

Gaga Fashions uses a periodic inventory system. The beginning inventory of a particular product, and the purchases during the current year, were as follows:

Jan 1 Beginning Inventory            400 $7.00        2,800
Feb 15 Purchase         1,000 $7.50        7,500
June 30 Purchase         1,400 $8.00      11,200
Nov 25 purchase         1,200 $8.25        9,900
Total Available for Sale in Year         4,000

     31,400

At December 31, the ending inventory of this product consisted of 1,300 units.
Determine the cost of the year-end inventory and the cost of goods sold for this product under each of the following methods of inventory valuation:

Average Cost

First In, First Out

Last In, First Out

Homework Answers

Answer #1

Closing Inventory = 1,300 Units

Average Cost Method:

Average Cost of Inventory = 31,400/4,000 = $7.85 per unit

Cost of Ending Inventory = 1300*7.85 = $10,205

Cost of Goods Sold = 2,700*7.85 = $21,195

FIFO Method:

Ending Inventor = 1,300 units

Purchased on Nov 25 = 1,200*8.25 = $9,900

Purchased on June 30 = 100*8 = $800

Cost of Ending Inventory = $10,700

Cost of Goods Sold = $31,400-$10,700 = $20,700

LIFO Method:

Ending Inventor = 1,300 units

Opening Balance 400*7 = $2800

Purchased on Feb 15 = 900*7.50 = $6,750

Cost of Ending Inventory = $9,550

Cost of Goods Sold = $31,400-$9,550 = $21,850

Beginning inventory is first sold in FIFO while latest inventory is first sold in LIFO Method.

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