Question

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

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.