Answer:
a. Cost of Goods Sold under FIFO method - $ 29.800
Ending inventory under FIFO method - $ 28,400
b. Cost of Goods Sold under average cost method - $ 33,950
Ending inventory under average cost method - $ 24,250
Explanation:
Units Unit Cost Cost
Beginning Inventory 1,000 $10 $10,000
Purchase #1 1,800 $ 11 $ 19,800
Purchase #2 800 $ 13 $ 10,400
Purchase #3 <u>1,200</u> $ 15 <u>$ 18,000</u>
Total available 4,800 $ 58,200
Units sold ( 2,800)
Ending Inventory 2,000
Computations under FIFO method
In the FIFO method of cost flows, the cost of goods sold are considered from the opening inventory and the earlier purchases. The ending inventory is from the later purchases.
Cost of goods sold
Units sold 2,800
Opening inventory 1,000 units @ $ 10 $ 10,000
Purchase # 1 1,800 units @ $ 11 <u>$ 19,800</u>
Total cost of Goods sold $ 29,800
Ending Inventory
Units on hand 2,000
Purchase #2 800 $ 13 $ 10,400
Purchase #3 <u>1,200</u> $ 15 <u>$ 18,000</u>
Ending Inventory $ 28,400
Computations under Average Cost method
Under average cost method, the cost of goods sold and the ending inventory is valued at the average cost of the goods available for sale divided by the number of units.
The average cost is calculated by dividing the total cost by the available units
Total Cost $ 58,200
Units available 4,800
Average cost per unit $ 12.13
Cost of goods sold = Units sold * Average cost = 2,800 * $ 12.13 = $ 33,950
Ending Inventory- Units in hand * Average Cost = 2,000 * $ 12.13= $ 24,250
