Question

Eaton Electronics uses a periodic inventory system. On March 31, Eaton has two plasma TVs on hand at a cost of $1,500 each (serial numbers 11534892 and 11534894). In April, the company purchases four more identical TVs from Toshiba for $1,450 each (serial numbers 11542631 through 11542634). In May, the company purchases five more identical TVs for $1,600 each (serial numbers 11550964 through 11550968). In June, Eaton sells two of these TVs (serial numbers 11534894 and 11542631). There were no additional purchases or sales during the remainder of the year. Eaton Electronics uses the FIFO method. What is the cost of its ending inventory?

Answer 1

Explanation: There can be several methods to value a inventory like weighted average, LIFO etc. one of them is FIFO,that is, first in first out. Under FIFO approach it is assumed that the earlier purchased stock will be sold first therefore the ending inventory under FIFO will be valued at the latest prices.

Under periodic inventory method the accounts are updated at a particular point of time and not continuously like in perpetual system.

therefore :-

Inventory = Beginning inventory +total purchase - sale

= 2 + 4 + 5 -2

= 9

value = (5*1600) + (4*1450) = 8000 + 5800 = $13800