   Chapter 7, Problem 7.13EX

Chapter
Section
Textbook Problem

Periodic inventory by three methods; cost of merchandise soldThe units of an item available for sale during the year were as follows: Jan. 1 Inventory 1,800 units at $108 Mar. 10 Purchase 2,240 units at$128 Aug 30 Purchase 2,000 units at $116 Dec. 12 Purchase 1,960 units at$120 There are 2,000 units of the item in the physical inventory at Deccmber 31. The periodic inventory system is used. Determine the inventory cost and the cost of merchandise sold by three methods, presenting vour answers in the following form: Inventory Method Cost Merchandise Inventory Merchandise Sold a. First-in, first-out  b. Last-in, first-out     c. Weighted average cost

(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 and merchandise sold using first in first out method under periodic inventory system.

Explanation

The ending inventory is estimated to be 2,000 units. Therefore, the value of ending inventory consists of recently purchased items.

Ending Inventory(FIFO) =(1,960 units×$120)+(40 units×$116)=$235,200+$4,640=\$239,840

Calculate the merchandise sold as follows:

Merchandise sold = Cost of merchandise available for sale – Ending inventory cost

(b)

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

(c)

To determine
value of inventory and merchandise sold using weighted average method under periodic inventory system.

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