Samuelson and Messenger (S&M) began 2013 with 360 units of its one product These units were...

Question:

Samuelson and Messenger (S&M) began 2013 with 360 units of its one product

These units were purchased near the end of 2012 for $24 each

During the month of January 250 units were purchased on January 8 for $27 each and another 300 units were purchased on January 19 for $29 each sale of 160 units and 250 units were made on January 10 and January 25 respectively

There were 490 units on hand at the end of the month S&M uses a periodic inventory system.


Calculate ending inventory and cost of goods sold for January using (1) FIFO and (2) Average Cost. (Round your intermediate calculations to 1 decimal place. Round your average cost per unit to 2 decimal places.)

Inventory Valuation Methods

Cost of inventory of a company (cost of ending inventory and goods sold) can be valued using the following inventory costing methods:

  • First-In First-Out (FIFO): FIFO method values inventory assuming that the goods from the opening inventory and earliest purchases are sold first and the ending inventory consists of the most recent purchases.
  • Last-In First-Out (LIFO): LIFO method values inventory assuming that the most recently purchased units of inventory are sold first the value of ending inventory consists of the earliest purchase prices and opening inventory value.
  • Weighted Average Cost: Under weighted average cost a single cost is assigned to all the units in inventory. This per unit cost of a good in inventory is calculated as the weighted average cost of the goods.
  • Specific Identification: Under this method each unit of inventory is tracked and identified individually and thereafter valued as per actual cost of the unit sold or in stock.

Answer and Explanation:

FIFO Average Cost
Cost of Goods Sold $9,990.0 $10,853.7
Cost of Ending Inventory $14,100.0 $13,236.3


WORKINGS

Calculation of cost of goods available for sale

Date of Purchase Number of units Unit Cost Total Cost
Opening Stock 360 $24 $8,640
January 8 250 $27 $6,750
January 19 300 $29 $8,700
Total 910 $24,090

1. FIFO Method

Calculation of Cost of Ending Inventory

Here,
Total Units Purchased = 910 units
Units Sold = 410 units
Ending Inventory = 500 units

As per FIFO method,
the 500 units are from the most recent purchases i.e. 200 units from January 8 purchase and 300 units from January 19 purchase and,
410 units sold are from the opening inventory and earliest purchases.

Date of Purchase Units Unit Cost Total Cost
January 8 200 $27 $5,400
January 19 300 $29 $8,700
Total Ending Inventory 500 $14,100

Cost of Ending Inventory = $14,100
Cost of Goods Sold = Cost of goods available for sale - Cost of Ending Inventory
Cost of Goods Sold = $24,090 - $14,100 = $9,990

2. Average Cost

Total units purchased = 910 units
Cost of Goods Available for Sale = $24,090
{eq}\therefore {/eq} Average Cost = {eq}\displaystyle \frac{\$24,090}{910 \text{ units}} {/eq} = $26.47 per unit

Cost of Goods Sold = 410 units * $26.47 per unit = $10,853.7
Cost of Ending Inventory = 500 units * $26.47 per unit = $13,236.3


Learn more about this topic:

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Inventory Valuation Methods: Specific Identification, FIFO, LIFO & Weighted Average

from Accounting 101: Financial Accounting

Chapter 6 / Lesson 11
62K

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