Question

Cortez Company sells chairs that are used at computer stations. Its beginning inventory of chairs was 200 units at $50 per unit. During the year, Cortez made two batch purchases of this chair. The first was a 330-unit purchase at $55 per unit; the second was a 355-unit purchase at $57 per unit. During the period, it sold 570 chairs.

Required
Determine the amount of product costs that would be allocated to cost of goods sold and ending inventory, assuming that Cortez uses
FIFO.
LIFO.
Weighted average.

Answer 1

The question is asking to calculate the cost of goods sold and ending inventory using FIFO, LIFO, and the weighted average methods by determining the cost per unit for chairs sold and chairs remaining in inventory based on the order of purchases.

Step-by-step explanation:

The question involves calculating the cost of goods sold and ending inventory for Cortez Company using different inventory valuation methods: FIFO (First In, First Out), LIFO (Last In, First Out), and the weighted average method. The company's beginning inventory consisted of 200 units at $50 per unit. Two purchases were made during the year: the first of 330 units at $55 per unit, and the second of 355 units at $57 per unit. Cortez sold 570 chairs during the period.

Under FIFO, the oldest costs (beginning inventory and first purchase) are assigned to the cost of goods sold, and the newest costs (most recent purchases) remain in ending inventory. LIFO assigns the newest costs to the cost of goods sold, with the oldest costs staying in ending inventory. The weighted average method calculates an average cost per unit for all the units available for sale and applies this average cost to both the units sold and the ending inventory.

To provide the exact numbers for each method, one would need to perform the following calculations:

• FIFO: Multiply the units sold by the costs of the oldest inventory first, moving to newer inventory as needed.
• LIFO: Multiply the units sold by the costs of the newest inventory first, moving to older inventory as costs are exhausted.
• Weighted Average: Calculate the total cost of all inventory available (beginning inventory and purchases) and divide by total units available to find the average cost per unit, and then multiply the units sold and units remaining by this average cost.