Question

Rogers Products uses a periodic inventory system. The company’s records show the beginning inventory of PH4 oil filters on January 1 and the purchases of this item during the current year to be as follows. Jan. 1 Beginning inventory 11 units @ $ 3.00 $ 33.00 Feb. 23 Purchase 18 units @ $ 3.50 63.00 Apr. 20 Purchase 28 units @ $ 3.80 106.40 May 4 Purchase 37 units @ $ 4.00 148.00 Nov. 30 Purchase 20 units @ $ 5.00 100.00 Totals 114 units $ 450.40 A physical count indicates 25 units in inventory at year-end. Determine the cost of the ending inventory on the basis of each of the following methods of inventory valuation. a. Average cost. b. FIFO. c. LIFO.

Answer 1

Answer:

a. Ending inventory value by average method is $ 98.77

b. Ending inventory value by FIFO method is $ 120

c. Ending inventory value by LIFO method is $ 82

Explanation:

Following are three types of Inventory valuation method.

1 ) Average Method : It is calculated by dividing total cost of inventory purchased divided by total units purchased.

In Periodic Inventory system,

Weighted average unit cost = Total cost of materials purchased / Total no.of units purchased.

Given data

Beginning inventory = 11 units

Date                                units             Unit Cost             Total Cost

Beginning inventory         11                      3                         33

Feb-23                               18                    3.5                       63

Apr-20                               28                    3.8                      106.40

May -04                              37                     4                         148

Nov-30                               20                     5                         100        

Total                                   114                                               450.4

Weighted average unit cost = 450.4 / 114 = 3.95

Ending inventory contains 25 units = 25 x 3.95 = 98.77

2) FIFO: FIFO means First in First out. In this type of inventory valuation method, ending inventory is composed of most recently purchased items.

Ending inventory by FIFO method is = (20 x 5) + (5 x 4) = 120.

3) LIFO: LIFO means Last in First out. In this type of inventory valuation method, most recently purchased items or units are issued to the production.

Ending inventory by LIFO method is = (11 x 3) + (14 x 3.5) = 82.

During inflation, FIFO results higher income as the lowest cost items are issued to the production and results higher inventory.