Question

Applying and Analyzing Inventory Costing Methods

At the beginning of the current period, Chen carried 1,000 units of its product with a unit cost of $24. A summary of purchases during the current period follows:

		Units	Unit Cost	Cost
Beginning Inventory		1,000	$24	$24,000
Purchases:	#1	1,800	26	46,800
	#2	800	30	24,000
	#3	1,200	33	39,600

During the current period, Chen sold 2,800 units.
a. Assume that Chen uses the first-in, first-out method. Compute its cost of goods sold for the current period and the ending inventory balance.

	Cost of Goods Sold	$Answer
	Ending Inventory	$Answer

b. Assume that Chen uses the last-in, first-out method. Compute its cost of goods sold for the current period and the ending inventory balance.

	Cost of Goods Sold	$Answer
	Ending Inventory	$Answer

c. Assume that Chen uses the average cost method. Compute its cost of goods sold for the current period and the ending inventory balance.

	Cost of Goods Sold	$Answer
	Ending Inventory	$Answer

Answer 1

First in first out method

Cost of goods sold = 1,000 x 24 + 1,800 x 26

= 24,000 + 46,800

= $ 70,800

Ending inventory = 800 x 30 + 1,200 x 33

= 24,000 + 39,600

= $ 63,600

Last in first out method

Cost of goods sold = 1,200 x 33 + 800 x 30 + 800 x 26

= 39,600 + 24,000 + 20,800

= $ 84,400

Ending inventory = 1,000 x 24 + 1,000 x 26

= 24,000 + 26,000

= $ 50,000

Average cost method

Average cost = 24 + 26 + 30 + 33

4

= $ 28.25

Cost of goods sold = 2,800 x 28.25

= $ 79,100

Ending inventory = 2,000 x 28.25

= $ 56,500