Question

Some of the information found on a detail inventory card for Headland Inc. for the first month of operations is as follows.

Received
Date No. of Units Unit Cost Issued, No. of Units Balance, No. of Units
January 2 1,700 $3.39 1,700
7 1,200 500
10 1,100 $3.62 1,600
13 1,000 600
18 1,500 $3.73 800 1,300
20 1,100 200
23 1,800 $3.84 2,000
26 1,300 700
28 2,100 $3.96 2,800
31 1,800 1,000
Calculate average-cost per unit. (Round answer to 2 decimal places, e.g. 2.76.)
Average-cost per unit $ _____
From these data compute the ending inventory on each of the following bases. Assume that perpetual inventory records are kept in units only.
(1) First-in, first-out (FIFO).
(2) Last-in, first-out (LIFO).
(3) Average-cost. (Round final answers to 0 decimal places, e.g. 6,548.)
(1) FIFO (2) LIFO (3) Average-cost
Ending Inventory $ $ $
If the perpetual inventory record is kept in dollars, and costs are computed at the time of each withdrawal, would the amounts shown as ending inventory in (1), (2), and (3) above be the same? What amount would be shown as ending inventory? (Round average cost per unit to 4 decimal places, e.g. 2.7621 and final answers to 0 decimal places, e.g. 6,548.)

Answer 1

The average-cost per unit for Headland Inc. is $3.76. The ending inventory can be calculated using the FIFO, LIFO, or average-cost method. The amounts shown as ending inventory would not be the same if the perpetual inventory record is kept in dollars with costs computed at the time of each withdrawal.

Step-by-step explanation:

To calculate the average-cost per unit, we need to divide the total cost by the total number of units. Summing up the total cost, we have - 1700 units x $3.39 + 1200 units x $3.62 + 1100 units x $3.73 + 1500 units x $3.84 + 1800 units x $3.96. Summing up the total units, we have - 1700 + 1200 + 1100 + 1500 + 1800. By dividing the total cost by the total units, we get the average-cost per unit as $3.76.

The ending inventory can be calculated using different methods:

1. First-in, first-out (FIFO): The ending inventory is calculated using the cost of the most recent purchases first. Based on the given data, the ending inventory using FIFO is $3.96 x 1,800 + $3.84 x (2,000 - 1,800) + $3.73 x (2,800 - 2,000) + $3.62 x (1,300 - 1,100) + $3.39 x (1,600 - 1,300).
2. Last-in, first-out (LIFO): The ending inventory is calculated using the cost of the oldest purchases first. Based on the given data, the ending inventory using LIFO is $3.39 x 1,000 + $3.62 x (1,100 - 1,000) + $3.73 x (1,300 - 1,100) + $3.84 x (1,600 - 1,300) + $3.96 x (2,800 - 1,600).
3. Average-cost: The ending inventory is calculated using the average cost per unit. Based on the given data, the ending inventory using average-cost is $3.76 x 2,000.

If the perpetual inventory record is kept in dollars and costs are computed at the time of each withdrawal, the amounts shown as ending inventory in FIFO, LIFO, and average-cost would not be the same. The amount shown as ending inventory would depend on the specific method used and the respective costs.