Chapter 8, Problem 8.13E

1.

To determine

Periodic Inventory System:

It is a system in which the inventory is updated in the accounting records on a periodic basis such as at the end of each month, quarter or year. In other words, it is an accounting method which is used to determine the amount of inventory at the end of each accounting period.

To Calculate: The cost of ending inventory and cost of goods sold using FIFO method.

Explanation of Solution

First-in-First-Out (FIFO): In First-in-First-Out method, the cost of initial purchased items are sold first. The value of the ending inventory consists the recent purchased items.

Calculate the total cost and units of goods available for sales.

Calculation of Goods Available for Sales
Details	Number of Units	Rate per unit ($)	Total Cost ($)
Beginning balance	2,000	6.1	12,200
Add: Purchases
August 8	10,000	5.5	55,000
August18	6,000	5	30,000
Total Goods available for Sale	18,000		97,200
Less: Sales:
August 14	8,000
August 25	7,000
Ending Inventory	3,000

Table (1)

Calculate the cost of ending inventory using FIFO method.

Calculation of Cost of Ending Inventory
Details	Number of Units	Rate per Unit ($)	Total Cost ($)
August 18 (Refer Table 1)	3,000	5.00	15,000
Ending Inventory	3,000	-	15,000

Table (2)

Therefore, the cost of ending inventory using the FIFO method is $15,000.

Calculate the cost of goods sold using FIFO method.

Calculate the cost of goods sold.

Goods available for sale = $97,200

Ending inventory = $15,000

$\begin{array}{c}\text{Cost of goods sold}=\text{Goods available for sale}-\text{Ending inventory}\\ =\text{\$97,200}-\$15,000\\ =\$82,200\end{array}$

Therefore, the cost of goods sold using the FIFO method is $82,200.

2.

To determine

To Calculate: The cost of ending inventory and cost of goods sold using FIFO method.

Explanation of Solution

Last-In, First-Out (LIFO): In Last-in-First-Out method, the cost of last purchased items are sold first. The value of the closing stock consists the initial purchased items.

Calculate the Cost of Ending Inventory.

Calculation of Cost of Ending Inventory
Details	Number of Units	Rate per Unit ($)	Total Cost ($)
Beginning Balance (Refer Table 1)	2,000	6.10	12,200
August 18 (Refer Table 1)	1,000	5.50	5,500
Ending Inventory	3,000		17,700

Table (3)

Therefore, the cost of ending inventory in the LIFO method is $17,700.

Calculate the cost of goods sold using LIFO method.

Calculate the cost of goods sold.

Goods available for sale = $97,200

Ending inventory = $17,700

$\begin{array}{c}\text{Cost of goods sold}=\text{Goods available for sale}-\text{Ending inventory}\\ =\text{\$97,200}-\$17,700\\ =\$79,500\end{array}$

Therefore, the cost of goods sold in the LIFO method is $79,500.

3.

To determine

To Calculate: The cost of ending inventory and cost of goods sold using weighted-average-cost method.

Explanation of Solution

Weighted-average cost method (WA): In Weighted-average Method the cost of inventory is priced at the average rate of the goods available for sale.

$\text{Weighted-average Cost}=\frac{\text{Total Cost of Goods Available For Sale}}{\text{Total number of units Available for Sale}}$

Calculate the amount of ending inventory.

Number of units in ending inventory = 3,000 units

Weighted-average-cost per unit = $5.40 (1)

$\begin{array}{c}\text{Cost of Ending inventory}=\left(\begin{array}{l}\text{Number of units in Ending inventory }\\ \times \text{ Weighted-average cost per unit}\end{array}\right)\\ =3,000\text{ units }\times \$5.40\\ =\text{\$16,200}\end{array}$

Working Note:

Calculate the Weighted-average cost.

$\begin{array}{c}\text{Weighted-average Cost}=\frac{\text{Total Cost of Goods Available For Sale}}{\text{Total number of units Available for Sale}}\\ =\frac{\$97,200}{18,000\text{ Units}}\\ =\$5.40\end{array}$ (1)

Therefore, the cost of ending inventory in the weighted-average-cost method is $16,200.

Calculate the cost of goods sold using weighted-average-cost method.

Calculate the cost of goods sold.

Goods available for sale = $97,200

Ending inventory = $16,200

$\begin{array}{c}\text{Cost of goods sold}=\text{Goods available for sale}-\text{Ending inventory}\\ =\$97,200-\$16,200\\ =\$81,000\end{array}$

Therefore, the cost of goods sold in the weighted-average-cost method is $81,000.