Question

Vaughn Company, which uses a periodic inventory system, had a beginning inventory on May 1, of 300 units of Product A at a cost of $6.25 per unit. During May, the following purchases and sales were made.

Purchases:   Sales:

May 6	300	units at $7.20	May 4	275	units
14	400	units at $9.10		300	units
21	100	units at $11.50	22	400	units
28	500 1 ,300	units at $11.80	24	225 1 ,200	units

Instructions: Compute the May 31 ending inventory and May cost of goods sold under (a) Average Cost, (b) FIFO, and (c) LIFO. Provide appropriate supporting calculations.

1.	FIFO: Ending Inventory	Cost of Goods Sold =
2.	LIFO: Ending Inventory = $	Cost of Goods Sold = $

3.    Average: Ending Inventory = $             Cost of Goods Sold -$-

Answer 1

FIFO method states that goods purchased first are sold first

LIFO method states that goods purchased later are sold first

Average cost method uses average cost for the purpose of accounting

Under periodic method, the records are maintained and updated at the end of the period and not after each transaction.

Average cost per unit = Total cost of goods available/Total units available

= (300*7.20+400*9.10+100*11.50+500*11.80)/1300

= $9.88 per unit

FIFO:

Ending Inventory = 100*11.80 = $1,180

Cost of goods sold = 12,850 – 1180 = $11,670

LIFO:

Ending Inventory = 100*7.20 = $720

Cost of goods sold = 12,850 – 720 = $12,130

Average Cost:

Ending Inventory = 100*9.88 = $988

Cost of goods sold = 12,850 – 988 = $11,862