eriodic inventory using FIFO, LIFO, and weighted average cost methods

Question

The units of an item available for sale during the year were as follows:

Date Line Item Description Units Cost per Unit Amount
Jan. 1 Inventory 19 units at $42 $798
Aug. 13 Purchase 10 units at $43 430
Nov. 30 Purchase 6 units at $44 264
Available for sale 35 units $1,492
There are 17 units of the item in the physical inventory at December 31. The periodic inventory system is used. Determine the inventory cost using the (a) first-in, first-out (FIFO) method; (b) last-in, first-out (LIFO) method; and (c) weighted average cost method (round per-unit cost to two decimal places and your final answer to the nearest whole dollar).

Line Item Description Amount
a. First-in, first-out (FIFO) method $fill in the blank 1
b. Last-in, first-out (LIFO) method $fill in the blank 2
c. Weighted average cost method

Answer 1

To calculate the inventory costs using the FIFO, LIFO, and weighted average cost methods, we follow these steps based on the provided data:

Given Data:

• Inventory on Jan 1: 19 units at $42 = $798
• Purchase on Aug 13: 10 units at $43 = $430
• Purchase on Nov 30: 6 units at $44 = $264
• Total Available for Sale: 35 units for $1,492
• Units in Physical Inventory at Dec 31: 17 units

a. First-In, First-Out (FIFO) Method

Under the FIFO method, we assume that the earliest goods purchased are the first to be sold.

Units Sold:

• Total units available = 35
• Units sold = Total available - Units remaining = 35 - 17 = 18 units

Cost of Remaining Inventory:

1. The last 17 units are valued based on the most recent purchases:
   • 6 units at $44 (Nov 30 purchase)
   • 10 units at $43 (Aug 13 purchase)
   • 1 unit from the Jan 1 inventory at $42

Calculating:

• 6 units at $44 = 6 × 44 = $264
• 10 units at $43 = 10 × 43 = $430
• 1 unit at $42 = 1 × 42 = $42

Total Cost of Ending Inventory (FIFO): \[ 6 \times 44 + 10 \times 43 + 1 \times 42 = 264 + 430 + 42 = 736 \]

Result:

• FIFO Ending Inventory: $736

b. Last-In, First-Out (LIFO) Method

Under the LIFO method, we assume that the most recently purchased goods are the first to be sold.

Cost of Remaining Inventory:

1. The first 17 units (remaining) will be from the older inventory:
   • 6 units at $42 (Jan 1 inventory)
   • 10 units at $43 (Aug 13 purchase)
   • 1 unit at $43 (from the Aug purchase)

Calculating:

• 6 units at $42 = 6 × 42 = $252
• 10 units at $43 = 10 × 43 = $430
• 1 unit at $44 = 1 × 44 = $44 (This step is not necessary since we already are considering only two older purchases)

Total Cost of Ending Inventory (LIFO): \[ 6 \times 42 + 10 \times 43 = 252 + 430 = 682 \]

Result:

• LIFO Ending Inventory: $682

c. Weighted Average Cost Method

Under this method, we calculate the average cost per unit of the inventory.

Weighted Average Cost Calculation: Total cost of inventory = $1,492 Total units available = 35

Average Cost per Unit: \[ \text{Average Cost} = \frac{\text{Total Cost}}{\text{Total Units}} = \frac{1492}{35} \approx 42.63 \]

Cost of Ending Inventory: Cost of ending inventory thus will be: \[ \text{Ending Inventory} = \text{Average Cost} \times \text{Units Remaining} = 42.63 \times 17 \approx 725.71 \]

Rounded to the nearest whole dollar: $726

Final Results:

1. a. FIFO: $736
2. b. LIFO: $682
3. c. Weighted Average Cost: $726

Therefore, the final inventory costs are:

• a. $736
• b. $682
• c. $726