Question

Whispering Winds Corp. uses the periodic inventory system and reports the following for the month of June.

Units Unit Unit Cost Total Cost
June 1 Inventory 352 $6 $2,112
12 Purchase 704 8 5,632
23 Purchase 528 10 5,280
30 Inventory 176

Required:
a. Compute the cost of the ending inventory and the cost of goods sold under (1) FIFO and (2) LIFO
b. Which costing method gives the higher ending inventory? Why?
c. Which method results in the higher cost of goods sold? Why?

Answer 1

a 1) FIFO

Closing Inventory = $1,760

Cost of Goods sold = $11,264

2) LIFO

Closing Inventory = $1,056

Cost of Goods sold = $11,968

b) FIFO gives the higher ending inventory than LIFO because the oldest items and lowest costs are allocated to the cost of goods sold.

c) LIFO results in higher cost of Goods sold because latest cost are allocated to the cost of goods sold and latest cost may include price increases.

Step-by-step explanation:

FIFO

Closing inventory = 176 units * $10= $1760

Cost goods sold = 352 units + 704+528 -176 =1,408 units sold

from opening $2,112

12 June = $5632

23 June = ( 528-176) =352 units * 10 =3,520

total sold = $11,264

LIFO

Closing inventory = 176 units * 6 = $1,056

Cost goods sold = 352 units + 704+528 -176 =1,408 units sold

23 June = $5,280

12 June = $5,632

1 June = (352-176) = 176 *6 = $1,056

Total = $11,968