Question

The beginning inventory was 380 units at a cost of $12 per unit. Goods available for sale during the year were 1,540 units at a total cost of $20,120. In May, 680 units were purchased at a total cost of $8,840. The only other purchase transaction occurred during October. Ending inventory was 670 units.

Required:
a.Calculate the number of units purchased in October and the cost per unit purchased in October.
b.Assume the periodic inventory system is used. Calculate cost of goods sold and ending inventory usingFIFO method.
c.Assume the periodic inventory system is used. Calculate cost of goods sold and ending inventory usingLIFO method.

Answer 1

a. The calculations revealed that 480 units were purchased in October at $14 per unit.

b. COGS = $11,090.

c. Ending Inventory LIFO = $13,420

Step-by-step explanation:

a. To calculate the number of units purchased in October and the cost per unit, we need to consider the beginning inventory, the purchases made in May, and the goods available for sale. We begin with the goods available for sale:

1. Goods available for sale: 1,540 units
2. Beginning inventory: 380 units
3. Purchase in May: 680 units
4. Goods available for sale - (Beginning inventory + Purchase in May) = Units purchased in October

1540 - (380 + 680) = 480 units purchased in October.

Since the total cost of goods available for sale was $20,120 and we subtract the cost of beginning inventory (380 units × $12/unit = $4,560) and the cost of the purchase in May ($8,840), we can find the cost of the purchase in October:

$20,120 - ($4,560 + $8,840) = $6,720 spent on the purchase in October.

Thus, the cost per unit in October: $6,720 ÷ 480 units = $14 per unit.

b. For the FIFO method, we sell the oldest items first. The cost of goods sold consists of the beginning inventory and the purchase in May:

1. Cost of Beginning Inventory (380 units × $12/unit) = $4,560
2. Cost of Purchase in May (680 units × $13/unit) = $8,840
3. Remember, to calculate cost of goods sold (COGS), we subtract the cost of ending inventory from total cost of goods available for sale:

COGS = $20,120 - (670 units × $14/unit) = $11,090.

c. Under the LIFO method, we sell the newest items first. For COGS, we use the purchase in October and any remaining from May:

1. Cost of Purchase in October (480 units × $14/unit) = $6,720
2. Balance COGS from remaining May and beginning inventory.

Ending Inventory LIFO = Beginning Inventory + Purchase in May = $13,420