Question

Lopez Company reported the following current-year data for its only product. The company uses a periodic inventory system, and its ending inventory consists of 150 units—50 from each of the last three purchases. Determine the cost assigned to ending inventory and to cost of goods sold using (a) specific identification, (b) weighted average, (c) FIFO, and (d) LIFO. (Round per unit costs and inventory amounts to cents.) Which method yields the highest net income?

Jan 1	Beginning inventory	96 units @ \(2.00	\)192
March 7	Purchases	220 units @ \(2.25	495
July 28	Purchases	544 units @ \)2.50	1,360
Oct 3	Purchases	480 units @ \(2.80	1,344
Dec 19	Purchases	160 units @ \)2.90	464
		1,500 units	$3,855

Short answer

Method	Cost of goods sold	Ending Inventory
Specific Identification	$3,445	$410
Weighted average	$3,469.5	$385.5
FIFO	$3,420	$435
LIFO	$3,541.5	$313.5

Step-by-step solution

Step-By-Step SolutionStep 1: Definition of Cost of Goods Sold

A line item used to calculate the gross profit that reflects the sacrifices made by the business entity on the goods that are sold for generating revenue is known as the cost of goods sold.

Calculation of cost of goods sold

(a) Specific Identification method

Particular	Units	X	Per unit	=	Total cost
Beginning inventory	96	X	2	=	$192
March 7	220	X	2.25	=	495
July 28	494	X	2.50	=	1,235
Oct 3	430	X	2.80	=	1,204
Dec 19	110	X	2.90	=	319
Total					$3,445

(b) Weighted Average method

$$\begin{gathered} \mathrm{Cost}\mathrm{of}\mathrm{goods}\mathrm{sold}=\frac{\mathrm{Total}\mathrm{cost}\mathrm{of}\mathrm{goods}\mathrm{available}\mathrm{for}\mathrm{sale}}{\mathrm{Total}\mathrm{units}\mathrm{available}\mathrm{for}\mathrm{sale}}\times \mathrm{Units}\mathrm{sold} \\ =\frac{\mathrm{\$}3,855}{1,500}\times 1,350 \\ =\mathrm{\$}3469.5 \end{gathered}$$

(c) FIFO

Particular	Units	X	Per unit	=	Total cost
Beginning inventory	96	X	2	=	$192
March 7	220	X	2.25	=	495
July 28	544	X	2.50	=	1,360
Oct 3	480	X	2.80	=	1,344
Dec 19	10	X	2.90	=	29
Total					$3,420

(d) LIFO

Particular	Units	X	Per unit	=	Total cost
March 7	166	X	2.25	=	$373.5
July 28	544	X	2.50	=	1,360
Oct 3	480	X	2.80	=	1,344
Dec 19	160	X	2.90	=	464
Total					$3,541.5

Calculation of Ending Inventory

Particular	Specific Identification	Weighted Average	FIFO	LIFO
Cost of goods available for sale	$3,855	$3,855	$3,855	$3,855
Less: Cost of goods sold	(3,445)	(3,469.5)	(3,420)	(3,541.5)
Ending Inventory	$410	$385.5	$435	$313.5

Method that yields the highest Net income

The cost of goods sold reported under the FIFO method are lowest. Therefore, the highest net income will be reported under this method.