Question

Question: Shania Twain Company was formed on December 1, 2016. The following information is available from Twain’s inventory records for Product BAP.

Units Unit Cost

January 1, 2017 (beginning inventory) 600 $ 8.00

Purchases:

January 5, 2017 1,200 9.00

January 25, 2017 1,300 10.00

February 16, 2017 800 11.00

March 26, 2017 600 12.00

A physical inventory on March 31, 2017, shows 1,600 units on hand.

Instructions

Prepare schedules to compute the ending inventory at March 31, 2017, under each of the following inventory methods.

(a) FIFO (b) LIFO. (c) Weighted-average (round unit costs to two decimal places).

Short answer

The value of ending inventory under FIFO, LIFO, and the Average cost method are $18,000, $13,800, and $15,856, respectively.

Step-by-step solution

Value of ending inventory under FIFO

Under FIFO, the earliest inventories are issued first. So the latest inventories remain in the closing inventory list.

Based on this, the schedule for ending inventory of 1,600 units based on FIFO would be as follow –

Date	Units	Cost per unit	Amount
March 26, 2017	600	$12	$7200
Feb 16, 2017	800	$11	$8800
Jan 25, 2007	200	$10	$2000
Total	1,600		$18,000

So the value of ending inventory under FIFO is $18,000.

Value of ending inventory under LIFO

Under LIFO, the latest inventories are issued first. So the earliest inventories remain in the ending inventory list.

Based on this, the schedule for ending inventory of 1,600 units based on LIFO would be as follow –

Date	Units	Cost per unit	Amount
Beginning	600	$8	$4800
Jan 5, 2007	1000	$9	$9000
Total	1,600		$13,800

So the value of ending inventory under LIFO is $13,800.