Question

Periodic Inventory by Three Methods

Dymac Appliances uses the periodic inventory system. Details regarding the inventory of appliances at January 1, purchases invoices during the next 12 months, and the inventory count at December 31 are summarized as follows:

Purchases Invoices
Model	Inventory, January 1		1st		2nd		3rd		Inventory Count, December 31
A10	__		4 at	$ 44	4 at	$ 47	4 at	$ 50	5
B15	8 at	$ 82	4 at	73	3 at	79	6 at	86	7
E60	3 at	74	3 at	64	15 at	67	9 at	69	5
G83	7 at	248	6 at	256	5 at	266	10 at	265	9
J34	12 at	85	10 at	87	16 at	94	16 at	95	13
M90	2 at	125	2 at	127	3 at	145	3 at	147	5
Q70	5 at	165	4 at	175	4 at	180	7 at	185	8

required

Determine the cost of the inventory on December 31 by the first-in, first-out method.

If the inventory of a particular model comprises one entire purchase plus a portion of another purchase acquired at a different unit cost, use a separate line for each purchase. If units are in inventory at two different costs, enter the units PURCHASED MOST RECENTLY first.

Dymac Appliances Cost of the Inventory-FIFO Method December 31
Model	Quantity		Unit Cost		Total Cost
A10		$		$
A10
B15
B15
E60
G83
J34
M90
M90
Q70
Q70
Total				$

2. Determine the cost of the inventory on December 31 by the last-in, first-out method.

If the inventory of a particular model comprises one entire purchase plus a portion of another purchase acquired at a different unit cost, use a separate line for each purchase. If units are in inventory at two different costs, enter the OLDEST units first.

Dymac Appliances Cost of the Inventory-LIFO Method December 31
Model	Quantity		Unit Cost		Total Cost
A10		$		$
A10
B15
E60
E60
G83
G83
J34
J34
M90
M90
M90
Q70
Q70
Total				$

3. Determine the cost of the inventory on December 31 by the weighted average cost method.

Dymac Appliances Cost of the Inventory-Weighted Average Method December 31
Model	Quantity		Unit Cost		Total Cost
A10		$		$
B15
E60
G83
J34
M90
Q70
Total				$

4.   would be preferred for income tax purposes in periods of rising prices.

Answer 1

Answer 1. The cost of the inventory on December 31 by the First-In, First-Out (FIFO) method:

To determine the cost of remaining inventory in FIFO method, first we have to check the units of last lot that came in. If the inventory count at December 31 is lesser than the last lot, then the unit cost will be the same that of the last lot. If the inventory count at December 31 is greater than the last lot, then the unit cost will be the sum of units at last lot plus the balance units in the inventory count multiplied by their unit cost and so on. Hence in the problem the solution is as follows:

Dymac Appliances
Cost of the Inventory-FIFO Method
Dec-31
Model	Quantity		Unit Cost		Total Cost
A10	4	$	47	$	188
A10	1	$	50	$	50
B15	1	$	79	$	79
B15	6	$	86	$	516
E60	5	$	69	$	345
G83	9	$	265	$	2385
J34	13	$	95	$	1235
M90	2	$	145	$	290
M90	3	$	147	$	441
Q70	1	$	180	$	180
Q70	7	$	185	$	1295
Total	52			$	7004

The cost of inventory as per FIFO is $ 7004 for all the models. In the above if the last lot remained the unit cost will be the same (for e.g. G83 model) otherwise before lot also to be considered (for eg., B15 model).

Answer 2 :The cost of the inventory on December 31 by the Last-In, First-Out (LIFO) method: In LIFO method the inventory count will be made from the opening balance lot. If the inventory count at December 31 is lesser than the opening balance, then the unit cost will be the same that of the opening balance. If the inventory count at December 31 is greater than the opening Balance, then the unit cost will be the sum of units at first lot plus the balance units in the opening balance multiplied by their unit cost and so on. The solution is self-explanatory hence workings are not provided.

Dymac Appliances
Cost of the Inventory-LIFO Method
Dec-31
Model	Quantity		Unit Cost		Total Cost
A10	1	$	44	$	44
A10	4	$	47	$	188
B15	7	$	82	$	574
E60	3	$	74	$	222
E60	2	$	64	$	128
G83	7	$	248	$	1736
G83	2	$	256	$	512
J34	12	$	85	$	1020
J34	1	$	87	$	87
M90	2	$	125	$	250
M90	2	$	127	$	254
M90	1	$	145	$	145
Q70	5	$	165	$	825
Q70	3	$	175	$	525
Total	52	$		$	6510

Hence, the cost of inventory as per LIFO Method is $6510

Answer 3: The cost of the inventory on December 31 by the weighted average cost method is determined by the following formula:

(No. of units per first lot X Unit Cost per first lot) +

(No. of units per second lot X Unit Cost per second lot)+n lots

Weighted Average cost=_________________________________________________________

Total No of units in all lots of inventory

Dymac Appliances
Cost of the Inventory-Weighted Average Method
Dec-31
Model	Quantity		Unit Cost		Total Cost
A10	5	$	47	$	235
B15	7	$	81	$	567
E60	5	$	68	$	340
G83	9	$	259	$	2331
J34	13	$	91	$	1183
M90	5	$	138	$	690
Q70	8	$	177	$	1416
Total	52			$	6762

Hence, the cost of inventory as per weighted average method is $6762

Workings:

Description	A10			B15			E60			G83			J34			M90			Q70
	Units	Cost$	Value$	Units	Cost$	Value$	Units	Cost$	Value$	Units	Cost$	Value$	Units	Cost$	Value$	Units	Cost$	Value$	Units	Cost$	Value$
Opening	0		0	8	82	656	3	74	222	7	248	1736	12	85	1020	2	125	250	5	165	825
1st	4	44	176	4	73	292	3	64	192	6	256	1536	10	87	870	2	127	254	4	175	700
2nd	4	47	188	3	79	237	15	67	1005	5	266	1330	16	94	1504	3	145	435	4	180	720
3rd	4	50	200	6	86	516	9	69	621	10	265	2650	16	95	1520	3	147	441	7	185	1295
Total	12		564	21		1701	30		2040	28		7252	54		4914	10		1380	20		3540
Avg Cost	47			81			68			259			91			138			177
Inventory	5			7			5			9			13			5			8
Cost	235			567			340			2331			1183			690			1416

Answer: Yes. FIFO method is preferred to consider for income tax purpose when prices are rising in order to show higher cost and lowering profits.