Question

Bonita Company’s record of transactions for the month of April was as follows.

Bonita Company's record of transactions for the month of April was as follows. Purchases April 1 (balance on hand) 780 @ $6.00 1,950 @ 6.08 1,040 @ 6.40 1,560 @ 6.50 910 @ 6.60 650 @ 6.79 6,890 Sales April 3 650 @ $10.00 9 1,820 @ 10.00 11 780 @ 11.00 23 1,560 @ 11.00 27 1,170 @ 12.00 5,980

Answer 1

Average cost

Date	Purchases / Sale	Inventory balance	Rate	Closing Inventory	Average Cost
01-Apr	-	780	6.00	4,680	6.00
03-Apr	-650	130	6.00	780	6.00
04-Apr	1,950	2,080	6.08	12,636	6.08
08-Apr	1,040	3,120	6.40	19,292	6.18
09-Apr	-1,820	1,300		8,038	6.18
11-Apr	-780	520		3,215	6.18
13-Apr	1,560	2,080	6.50	13,355	6.42
21-Apr	910	2,990	6.60	19,361	6.48
23-Apr	-1,560	1,430		9,260	6.48
27-Apr	-1,170	260		1,684	6.48
29-Apr	650	910	6.79	6,097	6.70
LIFO
Date	Purchases / Sale	Inventory balance	Rate	Closing Inventory	Average Cost
01-Apr	-	780	6.00	4,680	6.00
03-Apr	-650	130	6.00	780	6.00
04-Apr	1,950	2,080	6.08	12,636	6.08
08-Apr	1,040	3,120	6.40	19,292	6.18
09-Apr	-1,820	1,300		7,894	6.07
11-Apr	-780	520		3,151	6.06
13-Apr	1,560	2,080	6.50	13,291	6.39
21-Apr	910	2,990	6.60	19,297	6.45
23-Apr	-1,560	1,430		9,066	6.34
27-Apr	-1,170	260		1,461	5.62
29-Apr	650	910	6.79	5,875	6.46
The Average cost of Inventory is $6.70
The Inventory value at Average cost is $6,097.09 & LIFO is $5,874.70

FIFO
Date	Purchases / Sale	Inventory balance	Rate	Closing Inventory	Average Cost
01-Apr	-	780	6.00	4,680	6.00
03-Apr	-650	130	6.00	780	6.00
04-Apr	1,950	2,080	6.08	12,636	6.08
08-Apr	1,040	3,120	6.40	19,292	6.18
09-Apr	-1,820	1,300		8,237	6.34
11-Apr	-780	520		3,328	6.40
13-Apr	1,560	2,080	6.50	13,468	6.48
21-Apr	910	2,990	6.60	19,474	6.51
23-Apr	-1,560	1,430		9,499	6.64
27-Apr	-1,170	260		1,829	7.03
29-Apr	650	910	6.79	6,242	6.86

Under FIFO , Inventory value is $6,242 & under LIFO Inventory value is $5,875

Cost of goods sold under FIFO is opening Inventory + Purchases - Closing Inventory

= $4,680+ $39,072-$6,242 = $37,509

In Inflationary period , FIFO method will show highest Net income because under FIFO the Purchases made first will be used first and thus with Inflation economy , the purchases with higher cost will be remaining in Inventory will result in higher Closing Inventory value.