
Concept explainers
Ascertain the cost of goods sold and the ending inventory cost under (a) first-in first-out, (b) last-in first-out, and (c) weighted average cost method.

Explanation of Solution
Perpetual inventory system: The method or system of maintaining, recording, and adjusting the inventory perpetually throughout the year, is referred to as perpetual inventory system.
First-in-First-Out (FIFO): In this method, items purchased initially are sold first. So, the value of the ending inventory consist the recent cost for the remaining unsold items.
Last-in-First-Out (LIFO): In this method, items purchased recently are sold first. So, the value of the ending inventory consist the initial cost for the remaining unsold items.
Weighted-average Cost Method: In this method, the inventories are priced at the average rate of goods available for sales.
Ascertain the cost of goods sold and the ending inventory cost under (a) first-in first-out, (b) last-in first-out, and (c) weighted average cost method as follows:
(a) first-in first-out method:
Perpetual Inventory Costing Method (FIFO) | |||||||||
Date | Purchases | Cost of Goods Sold | Inventory on Hand | ||||||
Quantity (Units) | Unit Cost ($) |
Total Cost ($) |
Quantity (Units) | Unit Cost ($) |
Total Cost ($) |
Quantity (Units) | Unit Cost ($) |
Total Cost ($) | |
January 1 | 200 | 12 | 2,400 | ||||||
February 11 | 500 | 13 | 6,500 | 200 | 12 | 2,400 | |||
500 | 13 | 6,500 | |||||||
8,900 | |||||||||
March 1 | 200 | 12 | 2,400 | 300 | 13 | 3,900 | |||
200 | 13 | 2,600 | 3,900 | ||||||
May 18 | 400 | 15 | 6,000 | 300 | 13 | 3,900 | |||
400 | 15 | 6,000 | |||||||
10,900 | |||||||||
July 1 | 300 | 13 | 3,900 | 300 | 15 | 4,500 | |||
100 | 15 | 1,500 | |||||||
4,500 | |||||||||
October 23 | 100 | 18 | 1,800 | 300 | 15 | 4,500 | |||
100 | 18 | 1,800 | |||||||
Total | 1,000 | 14,300 | 800 | 10,400 | 400 | 6,300 |
Table (1)
Therefore, the cost of ending merchandised inventory and cost of goods sold under FIFO are $6,300 and $10,400 respectively.
(b) Last-in first-out method:
Perpetual Inventory Costing Method (LIFO) | |||||||||
Date | Purchases | Cost of Goods Sold | Inventory on Hand | ||||||
Quantity (Units) | Unit Cost ($) |
Total Cost ($) |
Quantity (Units) | Unit Cost ($) |
Total Cost ($) |
Quantity (Units) | Unit Cost ($) |
Total Cost ($) | |
January 1 | 200 | 12 | 2,400 | ||||||
February 11 | 500 | 16 | 6,500 | 200 | 12 | 2,400 | |||
500 | 13 | 6,500 | |||||||
8,900 | |||||||||
March 1 | 400 | 13 | 5,200 | 200 | 12 | 2,400 | |||
100 | 13 | 1,300 | |||||||
3,700 | |||||||||
May 18 | 400 | 15 | 6,000 | 200 | 12 | 2,400 | |||
100 | 13 | 1,300 | |||||||
400 | 15 | 6,000 | |||||||
9,700 | |||||||||
July 1 | 400 | 15 | 6,000 | 200 | 12 | 2,400 | |||
100 | 13 | 1,300 | |||||||
3,700 | |||||||||
October 23 | 100 | 18 | 1,800 | 200 | 12 | 2,400 | |||
100 | 13 | 1,300 | |||||||
100 | 18 | 1,800 | |||||||
Total | 1,000 | 14,300 | 800 | 11,200 | 400 | 5,500 |
Table (2)
Therefore, the cost of ending merchandised inventory and cost of goods sold under LIFO are $5,400 and $12,000 respectively.
(c) Weighted average cost method:
Perpetual Inventory Costing Method (Weighted-average) | |||||||||
Date | Purchases | Cost of Goods Sold | Inventory on Hand | ||||||
Quantity (Units) | Unit Cost ($) |
Total Cost ($) |
Quantity (Units) | Unit Cost ($) |
Total Cost ($) |
Quantity (Units) | Unit Cost ($) |
Total Cost ($) | |
January 1 | 200 | 12 | 2,400 | ||||||
February 11 | 500 | 13 | 6,500 | 700 |
12.72 (1) | 8,900 | |||
March 1 | 400 | 12.72 | 5,088 | 300 |
12.72 | 3,812 | |||
May 18 | 400 | 15 | 6,000 | 700 |
14.02 (2) | 9,812 | |||
July 1 | 400 | 14.02 | 5,608 | 300 | 14.02 | 4,204 | |||
October 23 | 100 | 18 | 1,800 | 400 |
15.01 (3) | 6,004 | |||
Total | 1,000 | 14,300 | 800 | 10,696 | 400 | 6,004 |
Table (3)
Therefore, the cost of ending merchandised inventory and cost of goods sold under weighted average method are $6,004 and $10,696 respectively.
Working note:
Calculate the average cost of inventory balance after the purchase on May 18.
Here,
Details | Units | Cost ($) |
Beginning Inventory | 200 | 2,400 |
Purchase on February 11 | 500 | 6,500 |
Goods Available for Sale on February 11 | 700 | 8,900 |
Table (4)
Calculate the average cost of inventory balance after the purchase on February 11.
Here,
Details | Units | Cost ($) |
Inventory after the Sale on March 1 | 300 | 3,812 |
Purchase on May 18 | 400 | 6,000 |
Goods Available for Sale on February 11 | 700 | 9,812 |
Table (5)
Calculate the average cost of inventory balance after the purchase on October 23.
Here,
Details | Units | Cost ($) |
Inventory after the Sale on July 1 | 300 | 4,204 |
Purchase on October 23 | 100 | 1,800 |
Goods Available for Sale on February 11 | 400 | 6,004 |
Table (5)
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