Question

Q1

During June, the following changes in inventory item 27 took place:

June 1 Balance 1,400 units @ £24

14 Purchased 900 units @ £36

24 Purchased 700 units @ £30

8 Sold 400 units @ £50

10 Sold 1,000 units @ £40

29 Sold 500 units @ £44

Perpetual inventories are maintained in units only.

Instructions

What is the cost of the ending inventory for item 27 under the following methods? (Show calculations.)

(a) FIFO.

(b) Average Cost.

Answer 1

A)

Ending inventory = Goods available for sale - Goods sold

= 1,400. + 900 + 700 - 400 - 1,000 - 500

= 1,100 units

Under FIFO method goods purchased first are sold first therefore ending inventory will be from the purchase made at last, therefore ending inventory will be from 700 units from purchase made on 24th and remaining 400 units from purchase made on 14th

Ending inventory

= 700*30 + 400*36

= 21,000 + 14,400

= 35,400

B)

Average cost

= (1,400*24 + 900*36 + 700*30)/3,000

= ( 33,600 + 32,400 + 21,000)/3,000

= 87,000/3,000

= 29

Therefore ending inventory will be

= 1,100*29

= 31,900

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