Asked by Billy Yeung on May 07, 2024
Verified
Pearl Company uses the periodic inventory system to account for inventories. Information related to Pearl Company's inventory at October 31 is given below: October 1 Beginning inventory 400 units @$9.60=$3,8408 Purchase 800 units @$10.40=8,32016 Purchase 600 units @$10.80=6,48024 Purchase 200 units @$11.80=2,360‾ Total units and cost 2,000 units $21,000\begin{array}{rllrl}\text { October } 1 & \text { Beginning inventory } & 400 \text { units } @ \$ 9.60= & \$ 3,840 \\8 & \text { Purchase } & 800 \text { units } @ \$ 10.40= & 8,320 \\16 & \text { Purchase } & 600 \text { units } @ \$ 10.80= & 6,480 \\24 & \text { Purchase } & 200 \text { units } @ \$ 11.80= & \underline{2,360} \\& \text { Total units and cost } & 2,000 \text { units } & \$ 21,000\end{array} October 181624 Beginning inventory Purchase Purchase Purchase Total units and cost 400 units @$9.60=800 units @$10.40=600 units @$10.80=200 units @$11.80=2,000 units $3,8408,3206,4802,360$21,000
Instructions
1. Show computations to value the ending inventory using the FIFO cost assumption if 600 units remain on hand at October 31.
2. Show computations to value the ending inventory using the weighted-average cost method if 600 units remain on hand at October 31.
3. Show computations to value the ending inventory using the LIFO cost assumption if 600 units remain on hand at October 31.
FIFO
An accounting method for valuing inventory that assumes the first items produced or bought are the first ones sold, standing for First In, First Out.
Weighted-Average Cost Method
An inventory costing method that assigns the average cost of goods available for sale to both ending inventory and cost of goods sold, weighted by the quantity of goods.
LIFO
Last In, First Out is a method of valuing inventory where the items that were most recently produced or purchased are the first ones to be used in the calculation of cost of goods sold.
- Assess the closing inventory value and the expenditure on goods sold by applying different inventory costing methods.
Verified Answer
Under FIFO, the units remaining in inventory are the ones purchased most recently.
10/2420010 / 24\quad20010/24200 units @$11.80=$2,360@ \$ 11.80 = \$ 2,360@$11.80=$2,360
10/16400‾units@10.80=4,320‾10 / 16\quad\underline { 400 } \text{units} \quad \quad @10.80 = \underline{ 4,320 } 10/16400units@10.80=4,320
600‾ \quad\quad\quad\quad\underline { 600 }600 units $6,680‾\quad\quad\quad\quad\quad\quad\underline{ \$ 6,680 }$6,680
2. 600 units in ending inventory.
Under average cost method the weighted average cost per unit must be computed.
$21000 ÷ 2000 units = $10.50
600 units × $10.50 = $6300 3. \quad 600 units in ending inventory.
\quad \quad Under LIFO, the units remaining are the ones purchased earliest.
\quad \quad 10/1400 units @$9.60=$3,84010/8200‾ units @10.40=2,080‾600‾units$5,920‾\begin{array} { l l l } 10 / 1 & 400 \text { units } @ \$ 9.60 = \$3,840\\ 10 / 8 & \underline { 200 } \text { units }@\quad 10.40 = \underline { 2,080 }\\&\underline{600}\text{units}\quad \quad \quad \quad \quad \quad \underline{\$5,920} \end{array}10/110/8400 units @$9.60=$3,840200 units @10.40=2,080600units$5,920
Learning Objectives
- Assess the closing inventory value and the expenditure on goods sold by applying different inventory costing methods.
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