Question

Periodic Inventory by Three Methods; Cost of Merchandise Sold 

The units of an item available for sale during the year were as follows: 

Jan. 1 Inventory 30 units @ $110 

Mar. 10 Purchase 70 units @ $120 

Aug. 30 Purchase 30 units @ $124 

Dec. 12 Purchase 70 units @ $128 

There are 80 units of the item in the physical inventory at December 31. The periodic inventory system is used. 

Determine the inventory cost and the cost of merchandise sold by three methods. Round interim calculations to one decimal and final answers to the nearest whole dollar. 

Answer 1

Answer 1)

Calculation of cost of Merchandise Inventory under FIFO method

Date	Particulars	Units	Cost per unit (in $)	Total Cost (in $)
Aug'30	Purchase	10	124	1,240
Dec'12	Purchase	70	128	8,960
Total		80		10,200

Therefore the cost of merchandise inventory under FIFO method is $ 10,200.

Calculation of cost of Merchandise sold under FIFO method

Date	Particulars	Units	Cost per unit (in $)	Total Cost (in $)
Jan'1	Beginning Inventory	30	110	3,300
Mar'10	Purchase	70	120	8,400
Aug'30	Purchase	20	124	2,480
Total		120		14,180

Therefore the cost of merchandise sold under FIFO method is $ 14,180.

Note: Under FIFO method, units of merchandise which are first bought are sold first and so on.

Cost of Merchandise Inventory: Out of 80 units in ending inventory, 10 units will be from the purchases made on Aug’30 at $ 124 per unit and balance 70 units will be from the purchases made on Dec’12 at $ 128 per unit.

Cost of Merchandise sold: Out of 120 units sold, 30 units will be from the units in beginning inventory on Jan’1 at $ 110 per unit, 70 units will be from the purchases made on Mar’10 at $ 120 per unit and balance 20 units will be from the units bought on Aug’30 at $ 124 per unit.

Answer 2)

Calculation of cost of Merchandise Inventory under LIFO method

Date	Particulars	Units	Cost per unit (in $)	Total Cost (in $)
Jan'1	Beginning Inventory	30	110	3,300
Mar'10	Purchase	50	120	6,000
Total		80		9,300

Therefore the cost of merchandise inventory under LIFO method is $ 9,300.

Calculation of cost of Merchandise sold under LIFO method

Date	Particulars	Units	Cost per unit (in $)	Total Cost (in $)
Mar'10	Purchase	20	120	2,400
Aug'30	Purchase	30	124	3,720
Dec'12	Purchase	70	128	8,960
Total		120		15,080

Therefore the cost of merchandise sold under LIFO method is $ 15,080

Note: Under LIFO method, units of merchandise which are latest bought are sold first and moving backwards.

Cost of Merchandise Inventory: Out of 80 units in ending inventory, 30 units will be from the in beginning inventory on Jan’1 at $ 110 per unit and balance 50 units will be from the purchases made on Mar’10 at 120 per unit.

Cost of Merchandise sold: Out of 120 units sold, 20 units will be from purchases made on Mar’10 at $ 120 per unit, 30 units will be from the purchases made on Aug’30 at $ 124 per unit and balance 70 units will be from the units bought on Dec’12 at $ 128 per unit.

Answer 3)

Calculation of cost of Merchandise Inventory and cost of Merchandise sold under Weighted Average cost method

Date	Particulars	Units	Cost per unit (in $)	Total Cost (in $)
Jan'1	Beginning Inventory	30	110	3,300
Mar'10	Purchase	70	120	8,400
Aug'30	Purchase	30	124	3,720
Dec'12	Purchase	70	128	8,960
Total		200		24,380

Weighted average cost = Total cost of beginning inventory and units purchased during the period/ total number of units in beginning inventory and units bought during the period

Weighted average cost = $ 24,380/200 units

                                          = $ 121.90

Therefore the weighted average cost is $ 121.90 per unit

Cost of merchandise inventory = number of units in ending inventory X weighted average cost

                                                         = 80 units X $ 121.90

                                                         = $ 9,752

Therefore the cost of merchandise inventory under weighted average cost method is $ 9,752.

Cost of merchandise sold = number of units sold X weighted average cost

                                                         = 120 units X $ 121.90

                                                         = $ 14,628

Therefore the cost of merchandise sold under weighted average cost method is $ 14,628.