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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Periodic inventory by three methods

The units of an item available for sale during the year were as follows:

Jan. 1 Inventory 1,000 units at $120
Feb. 17 Purchase 1,375 units at $128
July 21 Purchase 1,500 units at $136
Nov. 23 Purchase 1,125 unitsat$140

There are 1,200 units of the item in the physical inventory at December 31. The periodic inventory system is used. Determine the inventory cost by (a) the first-in, first-out method; (b) the last-in, first-out method; and (c) the weighted average cost method.

(a)

To determine

Periodic Inventory System:

Periodic inventory system 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.

First-in-First-Out:

In First-in-First-Out method, the costs of the initially purchased items are considered as cost of goods sold, for the items which are sold first. The value of the ending inventory consists of the recent purchased items.

Last-in-Last-Out:

In Last-in-First-Out method, the costs of last purchased items are considered as the cost of goods sold, for the items which are sold first. The value of the closing stock consists of the initial purchased items.

Weighted-average cost method:

Under Weighted average cost method, the company calculates a new average cost after every purchase is made. It is determined by dividing the cost of goods available for sale by the units on hand.

To determine: value of inventory using first in first out method under periodic inventory system.

Explanation

The ending inventory is estimated to be 1,200 units. Therefore, the value of ending inventory consists of recently purchased items.

Ending Inventory(FIFO) =(1,125 units×$140)

(b)

To determine
value of inventory using last in first out method under periodic inventory system.

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