Question

In the first month of operations, Mordica Company made three purchases of merchandise in the following sequence: (1) 200 units at $6, (2) 300 units at $7, and (3) 400 units at $9. Assuming there are 300 units on hand.Compute the cost of the ending inventory under the FIFO method and the LIFO method. Mordica uses a periodic inventory system.

Answer 1

FIFO = $2700

LIFO = $1900

Explanation:

Mordica's purchases from oldest to newest

200 units at $6

300 units at $7

400 units at $9

Using the FIFO method (first-in first-out) whereby the cost of the oldest inventory is associated with the sales price of goods first. That is goods are firstly sold at the price associated with the oldest inventory.

Therefore,

With 300 units on hand,

Under FIFO, The ending inventory

300 × $9 = $2700, since the oldest is assumed to have been sold first and the newest inventory is 400 units. So all 300 units in hand will be assumed to be from the latest purchase and hence associated with it's price.

Under LIFO whereby the cost of the newest inventory is firstly associated with goods sold.

Therefore, with 300 units in hand,

Cost of ending inventory = (200 × 6) + (100 ×$7) = $1200+$700=$1900

Since the newest is assumed to have been sold first, ending inventory will be from the oldest inventory, however, oldest inventory isn't up to 300, then we can attach the remaining 100 to the inventory that follows.

Answer 2

Step-by-step explanation:

Inventory purchased during the period are:

(1) 200 units at $6 = $1,200

(2) 300 units at $7 = $2,100

(3) 400 units at $9 = $3,600

Assuming there are 300 units on hand as closing inventory.

Compute the cost of the ending inventory under the:

FIFO method - value of ending inventory is 300 x $9 = $2,700

LIFO method - value of ending inventory is 200 x $6 = $1,200 + 100 x $7 = $700 = $1,900