Question

Speed World Cycles sells high-performance motorcycles and motocross racers. One of Speed World’s most popular models is the Kazomma 900 dirt bike. During the current year, Speed World Cycles purchased eight of these bikes at the following costs.

Purchase Date	Units Purchased		Unit Cost				Total Cost
July 1	2		$	4,950			$	9,900
July 22	3			5,000				15,000
Aug. 3	3			5,100				15,300
	8						$	40,200

On July 28, Speed World Cycles sold four Kazomma 900 dirt bikes to the Vince Wilson racing team. The remaining four bikes remained in inventory at September 30, the end of Speed World’s fiscal year.

Assume that Speed World Cycles uses a periodic inventory system.

Required:

a. Compute the cost of goods sold relating to the sale on July 28 and the ending inventory of Kazomma 900 dirt bikes at September 30, using the following cost flow assumptions.

1. Average cost.

2. FIFO.

3. LIFO.

Answer 1

Answer :

1. As per Average Cost :

Average Cost = Total Purchase Price / Total Purchase units

= 40200 / 8 ==> 5025

Cost of goods sold = 4 * 5025 ==> 20100

Closing imventory = 4 * 5025 ==> 20100

2. As per FIFO :

In this goods first purchased are sold first, so

Cost of goods sold = (2*4950) + (2*5000) ==> 19900

Closing Inventory = (1*5000) + (3*5100) ==> 20300

3. As per LIFO :

In this goods are last purchased are sold first, so

Cost of goods sold = (3*5100) + (1*5000) ==> 20300

Closing Inventory = (2*4950) + (2*5000) ==> 19900