Question

Periodic Inventory Using FIFO, LIFO, and Weighted Average Cost Methods

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

Jan. 1 Inventory 15 units at $4,000 $60,000
Aug. 7 Purchase 21 units at $4,600 96,600
Dec. 11 Purchase 18 units at $5,100 91,800
Available for sale 54 units $248,400
There are 17 units of the item in the physical inventory at December 31. The periodic inventory system is used. Determine the inventory cost using (a) the first-in, first-out (FIFO) method; (b) the last-in, first-out (LIFO) method; and (c) the weighted average cost method.

a. First-in, first-out (FIFO) method $fill in the blank 1
b. Last-in, first-out (LIFO) method $fill in the blank 2
c. Weighted average cost method

Answer 1

To find the best production method, we need to consider the cost of labor and capital. Initially, assuming labor costs $100/unit and capital costs $400/unit, we should calculate the total cost for each method. The method with the lowest cost is the most efficient. If labor costs increase to $200/unit, we should recalculate to find the new optimal method.

Step-by-step explanation:

The student's question involves determining the inventory cost using three different methods: FIFO (First-In, First-Out), LIFO (Last-In, First-Out), and the weighted average cost method in a periodic inventory system. These inventory valuation methods are used to calculate the cost of goods sold and ending inventory value for a company's financial statements.

To calculate the cost of inventory using FIFO, we assume that the oldest inventory items (first-in) are sold first. For LIFO, it is assumed that the newest (last-in) items are sold first. The weighted average method averages the cost of all goods available for sale during the period and then uses this average to determine the cost of goods sold and ending inventory