Question

Jones Co. started the year with no inventory. During the year, it purchased two identical inventory items at different times. The first purchase cost $1,240 and the other, $1,570. Jones sold one of the items during the year.

Required:
Based on this information, how much product cost would be allocated to the cost of goods sold and ending inventory on the year-end financial statements, assuming the use of the following?
(a) FIFO
(b) LIFO
(c) Weighted average

Answer 1

a. Using FIFO (First in, first out)

We have

Cost of goods sold = $1240 due to the fact that the first good bought cost $1240

Ending inventory = $1570

b. Using LIFO (last in, first out)

We have

Cost of goods sold = $1570 due to the fact that it was bought last

Ending inventory = $1240

c. Weighted average = (cost of good sold + ending inventory) ÷ 2

Thus

= (1240 + 1570) ÷ 2

= 2810 ÷ 2

= $1405