Question

OP 8-10 Periodic Inventory System with Different Cost Formulas Apply the three cost formulas for inventory: specific identification, FIFO, and weighted average cost. Fresh Wholesale buys peaches from farmers and sells them to canneries. During May 2017, Fresh's inventory records showed the following: Cases Price May 1 4 9 13 19 26 30 Beginning inventory.... Purchase Sale Purchase Sale... Purchase .. Sale 5,100 1,210 1,020 1,050 1,750 2,120 2.340 £10.50 12.00 19.65 12.50 19.65 13.00 19.65 Fresh Wholesale uses the periodic inventory system to account for its inventory, which means that all sales are assumed to occur at the end of the period no matter when they actually occurred. Required: Calculate the cost of goods sold and ending inventory using the following cost formulas. (Calculate unit costs to the nearest cent.) 1. FIFO 2. Weighted average cost

Answer 1

Periodic inventory system updates inventory records only at the end of reporting period concerned. FIFO stands for First In First Out which means that cost of goods sold must consider cost of those goods earlier. As a result, ending inventory will contain cost of recent purchases. Under weighted average inventory method, total value of purchases shall be divided by total number of units purchased to calculate unit cost. Cost of goods sold shall be calculated by multiplying number of units sold by unit cost calculated. Under FIFO: Ending inventory of 4370 units shall consist of 2120 units from May. 26's purchase, 1050 units from May. 13's purchase and bal. 1200 units from May. 4's purchase. From May. 4 purchase From May. 13 purchase From May. 26 purchase Cost of Ending inventory Available for sale Cost of Goods Sold £14,400 (1200 units x £12] £13,125 [1050 units x £12.5.0] £27,560 (2120 units x £13.0] £55,085 £108,755 [Ref: Data Table] £53,670.00 (£108755 - £55085]

Under Weighted Average Method: DATA TABLE: Units 5,100 Rate Amount £10.50 £53,550 [5100 units x £10.50] Ending inventory of 4370 units shall consist of 4370 units from entire lot. Therefore, 1 Available for sale - Dollar value Available for sale - Units Weighted Average cost per unit # of units in ending inventory Cost of Ending inventory Available for sale Cost of Goods Sold £108,755 [Ref: Data Table] 9,480 [Ref: Data Table] £11.47 (£108755 / 9480] 4,370 £50,123.90 [4370 units x £11.47] £108,755.00 [Ref: Data Table] £58,631.10 (£108755 - £50123.9] Beg. Bal. Purchases: On May.4 On May. 13 On May. 26 Available for sale Units sold Ending inventory 1,210 £12.00 £14,520 (1210 units x £12.00] ,050 £12.50 £13,125 [1050 units x £12.50] 2,120 £13.00 £27,560 [2120 units x £13.00] 9,480 £108,755 5,110 [1020 + 1750 + 2340] 4,370 [9480 - 5110]