Question

Lower-of-Cost-or-Market

Stalberg Company's beginning inventory and purchases during the fiscal year ended December 31, 20--, were as follows:
Units Unit Price Total Cost
Jan. 1 Beginning inventory 10 $20 $200
Mar. 5 1st purchase 10 22 220
Sept. 9 2nd purchase 10 25 250
Dec. 8 3rd purchase 10 30 300
40 $970
There are 10 units of inventory on hand on December 31.
1. Calculate the total amount to be assigned to the ending inventory under each of the following periodic inventory methods:
a. FIFO $
b. Weighted-average (round calculations to two decimal places.) $
2. Assume that the market price per unit (cost to replace) of Stalberg's inventory on December 31, 20--, was $26. Calculate the total amount to be assigned to the ending inventory on December 31 under each of the following methods:
a. FIFO lower-of-cost-or-market $
b. Weighted-average lower-of-cost-or-market $

Answer 1

1-a. The total amount to be assigned to the ending inventory under FIFO is $300.

1-b. The total amount to be assigned to the ending inventory under Weighted-average is $242.50.

2-a. The total amount to be assigned to the ending inventory under FIFO lower-of-cost-or-market is $260.

2-b. The total amount to be assigned to the ending inventory under weighted-average lower-of-cost-or-market is $242.50.

Step-by-step explanation:

1-a. Calculate the total amount to be assigned to the ending inventory under FIFO.

First In First Out (FIFO) method, the units purchased first are sold first and the units purchased last are sold last.

Since there are 10 units of inventory on hand on December 31 and Dec. 8 3rd purchase has 10 units, this implies that the total amount to be assigned to the ending inventory is $300 which is total amount of units of Dec. 8 3rd purchase.

Therefore, the total amount to be assigned to the ending inventory under FIFO is $300.

1-b. Calculate the total amount to be assigned to the ending inventory under Weighted-average (round calculations to two decimal places.).

Total cost = $970

Total units = 40

Weighted-average per unit = Total cost / Total units = $970 / 40 = $24.25

Cost of ending inventory = Weighted-average per unit * Units of ending inventory = $24.25 * 10 = $242.50

Therefore, the total amount to be assigned to the ending inventory under Weighted-average is $242.50.

2-a. Calculate the total amount to be assigned to the ending inventory under FIFO lower-of-cost-or-market.

Market price per unit = $26

Total amount of ending inventory using market price per unit = Market price per unit * Units of ending inventory = $26 * 10 = $260

Total amount of ending inventory using FIFO = $300

FIFO lower-of-cost-or-market = Total amount of ending inventory using market price per unit = $260

Therefore, the total amount to be assigned to the ending inventory under FIFO lower-of-cost-or-market is $260.

2-b. Calculate the total amount to be assigned to the ending inventory under Weighted-average lower-of-cost-or-market.

Market price per unit = $26

Total amount of ending inventory using market price per unit = Market price per unit * Units of ending inventory = $26 * 10 = $260

Total amount of ending inventory using weighted-average = $242.50

Weighted-average lower-of-cost-or-market = Total amount of ending inventory using weighted-average = $242.50

Therefore, the total amount to be assigned to the ending inventory under weighted-average lower-of-cost-or-market is $242.50.