Question

Campford Company began Year 1 with 8,100 units of inventory on hand. The cost of each unit was $5.32. During Year 1 an additional 26,500 units were purchased at a single unit cost, and 17,000 units remained on hand at the end of Year 1 (17,600 units therefore were sold during Year 1). Campford uses a periodic inventory system. Cost of goods sold for Year 1, applying the average cost method, is $100,672. The company is interested in determining what cost of goods sold would have been if the FIFO or LIFO methods were used.

Required:

1. Determine the cost of goods sold for Year 1 using the FIFO method. [ Hint: Determine the cost per unit of year 1 purchases.]

2. Determine the cost of goods sold for Year 1 using the LIFO method.

Answer 1

Cost per unit = Cost of goods sold / Units sold

= $100,672 / 17,600

= $5.72

Cost per unit = Cost of units available for sale / Number of units available for sale

$5.72 = (8,100 * $5.32) + (26,500 * cost) / (8,100 + 26,500)

$197,912 = $43,092 + (26,500 * cost)

Cost per unit purchased = $5.84

1. Under FIFO units sold consists of beginning inventory and earliest purchases.

17,600 units sold consists of 8,100 units from beginning inventory and 9,500 units from units purchases.

Cost of goods sold = (8,100 * $5.32) + (9,500 * $5.84)

= $98,572

2. Under LIFO units sold consists of units from recent purchases.

17,600 units sold consist of units purchased

Cost of goods sold = 17,600 * $5.84

= $102,784