Question

Beginning inventory, purchases, and sales data for portable game players are as follows:

Apr. 1		Inventory	120 units at $26
10		Sale	90 units
15		Purchase	140 units at $28
20		Sale	110 units
24		Sale	40 units
30		Purchase	160 units at $30

The business maintains a perpetual inventory system, costing by the first-in, first-out method.

a. Determine the cost of the merchandise sold for each sale and the inventory balance after each sale, presenting the data in the form illustrated in Exhibit 3. Under FIFO, if units are in inventory at two different costs, enter the units with the LOWER unit cost first in the Cost of Merchandise Sold Unit Cost column and in the Inventory Unit Cost column.

Cost of the Merchandise Sold Schedule
First-in, First-out Method
Portable Game Players
Date	Quantity Purchased	Purchases Unit Cost	Purchases Total Cost	Quantity Sold	Cost of Merchandise Sold Unit Cost	Cost of Merchandise Sold Total Cost	Inventory Quantity	Inventory Unit Cost	Inventory Total Cost
Apr. 1								$	$
Apr. 10					$	$
Apr. 15		$	$
Apr. 20
Apr. 24
Apr. 30
Apr. 30	Balances					$			$

Feedback

Note that this exercise uses the perpetual inventory system. FIFO means that the first units purchased are assumed to be the first to be sold. Therefore, ending inventory is made up of the most recent purchases.

b. Based upon the preceding data, would you expect the inventory to be higher or lower using the last-in, first-out method?
Lower

Feedback

Consider the cost of inventory when purchased and when sold. Remember FIFO reports higher gross profit, net income, and ending inventory than the LIFO method when costs (prices) are increasing.

Feedback

Partially correct

Answer 1

a. Determine the cost of the merchandise sold for each sale and the inventory balance after each sale

Date	Quantity purchase	Purchase unit Cost	Cost of merchandise purchase	Quantity sold	Unit Cost	Cost of merchandise sold	Ending inventory	Unit Cost	Ending inventory balance
Apr 1							120	26	3120
Apr 10				90	26	2340	30	26	780
Apr 15	140	28	3920				30 140	26 28	780 3920
Apr 20				30 80	26 28	780 2240	60	28	1680
Apr 24				40	28	1120	20	28	560
Apr 30	160	30	4800				20 160	28 30	560 4800
Apr 30	Balance					6480			5360

2) Inventory would be lower under last in first out method