Question

in its first month of operations, Waterway Industries made three purchases of merchandise in the following sequence: (1) 370 units at $4, (2) 470 units at $6, and (3) 570 units at $7. Assuming there are 270 units on hand at the end of the period, compute the cost of the ending inventory under (a) the FIFO method and (b) the LIFO method. Waterway Industries uses a periodic inventory system.

Answer 1

Answer:

                             FIFO:            LIFO:

Ending Inventory: 1, 890           1,080

COGS                    6,400           7,210

Explanation:

     (1)  370 units at $4 =  1,480

     (2) 470 units at $6 = 2,820

     (3) 570 units at $7 = 3,990  

Total: 1,410 units Cost:  8,290

FIFO:

The first units are sold while the last are part of ending inventory:

The 270 units of ending inventory will be frm the third purchase.

270 x $7 = 1,890

The COGS will be the difference between the cost of goods available and ending inventory: 8,290 - 1,890 = 6,400

LIFO:

The last units are sold while the first are part of ending inventory

The 270 units of EI will be taken from the first row

270 units x $4 = 1,080

COGS: 8,290 - 1,080 = 7,210