Question

Penn Company uses a periodic inventory system. At the end of the annual accounting period, December 31 of the current year, the accounting records provided the following information for product 1: Units Unit Cost Inventory, December 31, prior year For the current yea 2,000 $5 Purchase, March 21 Purchase, August 1 5,000 3,000 4,000 Inventory, Decmber 31, current year
Required: Compute ending inventory and cost of goods sold for the current year under FIFO, LIFO, and average cost inventory costing methods
FIFO LIFO Average Cost
Ending inventory
Cost of goods sold

Answer 1

Answer and Explanation:

The computation is shown below:-

Units sold = Opening balance + Purchase in march + Purchase in August - Closing balance

= 2,000 + 5,000 + 3,000 - 4,000

= 6,000

1. FIFO method:

So total cost of goods sold is (2000 × $5) + (4,000 × $6)

= $34,000

Ending inventory value is

= (1000 × 6) + (3000 × $8)

= $30,000

2. LIFO method:

Total value of goods sold is

= (3,000 × $8) + (3,000 × $6)

= $42,000

Ending inventory value is

(2,000 × 6) + (2000 × $5)

= $22,000

3. Average cost of inventory

Opening inventory + Purchase on Mar.21 + Purchase on Aug.1

(2,000 × $5) + (5000 × $6) + (3000 × 8)

= $64,000.

Total units is

= 2,000 + 5,000 + 3,000

= 10,000

Average cost is

= $64,000 ÷ 10,000

= $6.40 per units.

Now,

Cost of goods sold is 6,000 × $6.40

= $38,400

Ending Inventory value is

= 4,000 × $6.40

= $25,600

Answer 2

The computation of the ending inventory and the cost of goods sold for the year under the three inventory costing methods is as follows:

                                    FIFO          LIFO       WEIGHTED-AVERAGE

Ending inventory      $22,000   $27,000       $24,400

Cost of goods sold  $39,000   $34,000       $36,600

Data and Calculations:

                                           Units       Unit Cost      Total Costs

December 31, Inventory   2,000             $5              $10,000

March 21         Purchase   5,000             $6             $30,000

March 21         Purchase   3,000             $8              $21,000

Total                                 10,000                               $61,000

Average cost per unit = $6.10 ($61,000/10,000)

December 31, Inventory   4,000

Units sold =                       6,000 (10,000 - 4,000) units

FIFO:

Ending inventory = $22,000 (2,000 x $6 + 2,000 x $5)

Cost of goods sold = $39,000 ($61,000 - $22,000)

LIFO:

Ending inventory = $27,000 (1,000 x $6 + 3,000 x $8)

Cost of goods sold = $34,000 ($61,000 - $27,000)

Weighted Average:

Ending inventory = $24,400 (4,000 x $6.10)

Cost of goods sold = $36,600 (6,000 x $6.10)

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