(a) the cost of goods available for sale is $21,500.
Beginning inventory: 300 units * $8 per unit = $2,400
Purchases:
Feb. 20: 700 units * $9 per unit = $6,300
Aug. 12: 600 units * $11 per unit = $6,600
May 5: 500 units * $10 per unit = $5,000
Dec. 8: 100 units * $12 per unit = $1,200
Total cost of purchases: $6,300 + $6,600 + $5,000 + $1,200 = $19,100
Cost of goods available for sale = Beginning inventory + Total cost of purchases
Cost of goods available for sale = $2,400 + $19,100 = $21,500
Therefore, the cost of goods available for sale is $21,500.
(b) To determine the ending inventory and cost of goods sold under each cost flow method, we will calculate them using FIFO, LIFO, and average cost methods.
FIFO (First-In-First-Out):
Ending Inventory: The 100 units purchased on December 8 at $12 per unit, as they are the latest purchases.
Ending Inventory = 100 units * $12 per unit = $1,200
Cost of Goods Sold: Beginning inventory and earlier purchases are considered.
Cost of Goods Sold = Cost of Goods Available for Sale - Ending Inventory
Cost of Goods Sold = $21,500 - $1,200 = $20,300
LIFO (Last-In-First-Out):
Ending Inventory: The 100 units purchased on December 8 at $12 per unit, as they are the earliest purchases.
Ending Inventory = 100 units * $12 per unit = $1,200
Cost of Goods Sold: Beginning inventory and earlier purchases considered.
Cost of Goods Sold = Cost of Goods Available for Sale - Ending Inventory
Cost of Goods Sold = $21,500 - $1,200 = $20,300
Average Cost:
Ending Inventory: Average cost per unit is calculated by dividing the total cost of goods available for sale by the total number of units available.
Average cost per unit = Total cost of goods available for sale / Total units available
Average cost per unit = $21,500 / (300 + 700 + 600 + 500 + 100) = $8.21 (rounded to two decimal places)
Ending Inventory = Number of units in ending inventory * Average cost per unit
Ending Inventory = 100 units * $8.21 per unit = $821
Cost of Goods Sold: Beginning inventory and earlier purchases are considered.
Cost of Goods Sold = Cost of Goods Available for Sale - Ending Inventory
Cost of Goods Sold = $21,500 - $821 = $20,679
To prove the accuracy of the cost of goods sold under the FIFO and LIFO methods, we can observe that in this scenario, since there are no changes in the cost per unit during the year, the cost of goods sold is the same under both methods ($20,300).
(c) The cost flow method that results in the lowest inventory amount for the balance sheet is LIFO. In this case, since the latest purchases are considered part of the ending inventory, the inventory is valued at lower, older costs. The cost flow method that results in the lowest cost of goods sold for the income statement is FIFO. FIFO assumes that the older units are sold first, resulting in lower costs being allocated to cost of goods sold.