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
<u>Date units Unit Cost Total Cost </u>
Beginning inventory 11 3 33
Feb-23 18 3.5 63
Apr-20 28 3.8 106.40
May -04 37 4 148
<u>Nov-30 20 5 100 </u>
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.
