Question

The following is a record of Pervis Ellison Company’s transactions for Boston Teapots for the month of May 2017.

May 1 Balance 400 units @ \(20 May 10 Sale 300 units @ \)38

12 Purchase 600 units @ \(25 20 Sale 540 units @ \)38

28 Purchase 400 units @ $30

Instructions

(a) Assuming that perpetual inventories are not maintained and that a physical count at the end of the month shows 560units on hand, what is the cost of the ending inventory using (1) FIFO and (2) LIFO?

(b) Assuming that perpetual records are maintained and they tie into the general ledger, calculate the ending inventory using (1) FIFO and (2) LIFO.

Short answer

Answer

The value of periodic ending inventory under FIFO and LIFO are $16,000 and $12,000, respectively. Under perpetual inventory, these figures are $16,000 and $15,500, respectively.

Step-by-step solution

Value of ending inventory under periodic method

$\begin{array}{rcl}\mathrm{Ending}\mathrm{inventory}\left(\mathrm{Units}\right)& =& \mathrm{Total}\mathrm{units}\mathrm{available}\mathrm{for}\mathrm{sale}-\mathrm{Total}\mathrm{units}\mathrm{sold}\\ & =& 1,400-840\\ & =& 560\end{array}$

1) Using FIFO

Date	Units	Cost per unit	Amount
May 28	400	$30	$12000
May 12	160	$25	$4000
Total	560		$16,000

The value of ending inventory by FIFO is $16,000.

2) Using LIFO

Date	Units	Cost per unit	Amount
Beginning	400	$20	$8000
May 12	160	$25	$4000
Total	560		$12,000

The value of ending inventory by FIFO is $12,000.

3) Using Weighted Average

$\begin{array}{rcl}\mathrm{Average}\mathrm{cost}& =& \frac{\mathrm{Total}\mathrm{value}\mathrm{of}\mathrm{available}\mathrm{units}}{\mathrm{Total}\mathrm{available}\mathrm{units}}\\ & =& \frac{\$35,000}{1,400}\\ & =& \$25\end{array}$

$\begin{array}{rcl}\mathrm{Value}\mathrm{of}\mathrm{ending}\mathrm{inventory}& =& \mathrm{Average}\mathrm{cost}\times \mathrm{Ending}\mathrm{inventory}\\ & =& \$25\times 560\\ & =& \$14,000\end{array}$

Value of ending inventory under perpetual method

1) Using FIFO

Date	Purchase	Cost of goods sold	Balance
May 1	Beginning 400 units @ $20		$8,000
May 10		300 units @ $20	-$6,000
			$2,000
May 12	600 units @ $25		$15,000
			$17,000
May 20		100 units @ $20	-$2000
		440 units @ 25	-$11,000
			$4,000
May 28	400 units @ $30		$12,000
			$16,000

The value of ending inventory amounts to $16,000.

2) Using LIFO

Date	Purchase	Cost of goods sold	Balance
May 1	Beginning 400 units @ $20		$8,000
May 10		300 units @ $20	-$6,000
			$2,000
May 12	600 units @ $25		$15,000
			$17,000
May 20		540 units @ $25	-$13,500
			$3,500
May 28	400 units @ $30		$12,000
			$15,500

The value of ending inventory amounts to $15,500.