Question

Problem #1 Periodic Inventory Methods/Valuation
Hyper Company had a beginning inventory on January 1 of 160 units of Product 4-18-19 at a
cost of $20 per unit. During the year, the following purchases were made.
Mar. 15 400 units at $23
Sept. 4 330 units at $26
July 20 250 units at $24
Dec. 2 100 units at $29

1,000 units were sold. Hyper Company uses a periodic inventory system.
Instructions
(a) Determine the cost of goods available for sale.
(b) Determine (1) the ending inventory, and (2) the cost of goods sold under each of the
assumed cost flow methods (FIFO, LIFO, and average-cost).
(c) Which cost flow method results in (1) the highest inventory amount for the balance sheet,
and (2) the highest cost of goods sold for the income statement?

Answer 1

a) Determination of Cost of goods available for sale :- Date Particulars Units Rate 01-Jan Opening Balance 160 20.00 15-Mar Purchases 400 23.00 20-Jul Purchases 24.00 04-Sep Purchases 330 26.00 02-Dec Purchases 100 29.00 Goods available for sales 1,240 250 Value 3,200 9,200 6,000 8,580 2,900 29,880 Cost of goods available for sale is $ 29,880/. b) Units of ending inventory is = (1240-1000) = 240 Units Transactions FIFO LIFO Average cost Ending inventory 6,540 5,040 5,784 Cost of goods sold 23,340 24,840 24,100 FIFO :- First received are sold first and hence last purchased will lie in closing stock LIFO :- Last received are sold first and hence first purchased will lie in closing stock Average costs per unit = (29880/1240) - $ 24.10/. C-1) FIFO methods results in higher inventory in balance sheet as it reflects latest prices which will generally be higher than beginning purchases. C-2) Highest cost of goods sold will be under LIFO, since Last purchased or latest units are sold first and hence cost will be higher.