Question

Marigold Corp. had 1,700 units of part M.O. on hand May 1, 2020, costing $25 each. Purchases of part M.O. during May were as follows.

		Units		Units Cost
May 9		2,200		$26
17		3,700		28
26		1,200		29

A physical count on May 31, 2020, shows 2,200 units of part M.O. on hand. Using the FIFO method, what is the cost of part M.O. inventory at May 31, 2020? Using the LIFO method, what is the inventory cost? Using the average-cost method, what is the inventory cost? (Round average cost per unit to 2 decimal places, e.g. 15.25 and final answers to 0 decimal places, e.g. 1,620.)

		FIFO		LIFO		Average Cost
Inventory Cost		$enter a dollar amount rounded to 0 decimal places		$enter a dollar amount rounded to 0 decimal places		$enter a dollar amount rounded to 0 decimal places

Answer 1

Answer 1)

Calculation of value of inventory at May 31, 2020 under FIFO Method

Date	Units	Unit Cost	Total Cost
May'17	1,000	$ 28	$ 28,000
May'26	1,200	$ 29	$ 34,800
Total	2,200		$ 62,800

The value of 2,200 units of inventory under FIFO method is $ 62,800

FIFO Method: Under FIFO method inventory is valued on the assumption that the units which are first bought are first sold and so on. Thus the ending inventory will comprise of the goods which are latest bought and moving backwards.

In given question, the company had 2,200 units of inventory in hand on May’31. Under FIFO method, out of the 2,200 units, 1,000 units will be from the units purchased on May’17 at $ 28.00 per unit and balance 1,200 units will be the inventory purchased on May’26 at $ 29.00 per unit.

Answer 2)

Calculation of value of inventory at May 31, 2020 under LIFO method

Date	Units	Unit Cost	Total Cost
May'1	1,700	$ 25	$ 42,500
May'9	500	$ 26	$ 13,000
Total	2,200		$ 55,500

The value of 2,200 units of inventory under LIFO method is $ 55,500

LIFO Method: Under LIFO method inventory is valued on the assumption that the units which are latest bought are first sold and moving backwards. Thus the ending inventory will comprise of the goods which are bought at the earliest and so on.

In given question, the company had 2,200 units of inventory in hand on May’31. Under LIFO method, out of the 2,200 units, 1,700 units will be from the inventory balance on May’1 at $ 25.00 per unit and balance 400 units will be the inventory purchased on May’9 at $ 26.00 per unit.

Answer 3)

Calculation of value of inventory at May 31, 2020 under average cost method

Date	Units	Unit Cost	Total Cost
May'1	1,700	$ 25	$ 42,500
May'9	2,200	$ 26	$ 57,200
May'17	3,700	$ 28	$ 103,600
May'26	1,200	$ 29	$ 34,800
Total	8,800		$ 238,100

average cost = (Total cost of opening inventory and inventory bought during the period/ Total number of units in opening inventory and inventory bought during the period)

                                         = $ 238,100/ 8,800 units

                                        = $ 27.0568 or 27.06 (Approximately)

Value of Inventory = Number of units in inventory X average cost

                                   = 2,200 units X $ 27.0568

                                   = $ 59,525

The value of 2,200 units of inventory under average cost method is $ 59,525

Average cost method: Under average cost method, an average cost is calculated by dividing the aggregate value of inventory at the beginning of the period and inventory bought during the period by the total number of units at the beginning of the period and units bought during the period. The average cost so calculated is then multiplied with the number of units at the end of period to arrive at the value of inventory.