Question

Davidson Electronics has the following data available

Date	Explanation	Units	Unit cost	Total Cost
1st of January 2012	Beginning inventory	5,000	SR 8	SR 40,000
2nd April	Purchases	1,5000	SR 10	150,000
28th August	Purchases	20,000	SR 12	240000
	Total	40,000		430,000

Requirement: Ending inventory of the company is 5,000 units. Find the Costs of goods sold for the company through FIFO, LIFO and Average method.

Answer 1

1) FIFO method

Fifo method assumed that goods that are acquired first are sold first, thus in this case the closing inventory of 5,000 units would be from purchase made on 28th August.

Thus closing value of Inventory.would be $60,000 ($5*12,000)

2) LIFO Method

Lifo method assumes that goods that are purchased at most recent are sold first, so in the above case it is quite obvious that 5000 units would belong to beginning inventory on 1st June

Hence, value of closing inventory would be $40,000 (5000*8)

3) Average cost formulae:

Total Cost of purchase / Total units purchased

= $430,000 / 40,000

= $10.75 per unit

Value of closing inventory: $53,750 ($5000*10.75).