Chapter 8, Problem 8.17E

FIFO, LIFO, and average cost methods

• LO8–1, LO8–4

Causwell Company began 2018 with 10,000 units of inventory on hand. The cost of each unit was $5.00. During 2018 an additional 30,000 units were purchased at a single unit cost, and 20,000 units remained on hand at the end of 2018 (20,000 units therefore were sold during 2018). Causwell uses a periodic inventory system. Cost of goods sold for 2018, applying the average cost method, is $115,000. The company is interested in determining what cost of goods sold would have been if the FIFO or LIFO methods were used.

Required:

1. Determine the cost of goods sold for 2018 using the FIFO method. [Hint: Determine the cost per unit of 2018 purchases.]

2. Determine the cost of goods sold for 2018 using the LIFO method.