Question

Franklin Co. had 10 units of an inventory item on hand at the beginning of the current year, each of which had a per-unit cost of $10. During the year, 20 additional units were purchased at $11, and 25 units were sold. What is the amount of the ending inventory under the LIFO and the averagecost methods of accounting for inventory?

Answer 1

Answer:

$55 and $100

Explanation:

The computation of the ending inventory is shown below:

Under the LIFO method

= Ending inventory units × purchase price

where,

Ending inventory units is

= 10 units + 20 units - 25 units

= 5 units

So, the ending inventory is

= 5 units × $11

= $55

Under the Average cost method

The average cost per unit is

= (Beginning inventory units × price per unit + purchase inventory units × price per unit) ÷ (Beginning inventory units + purchase inventory units)

= (10 units × $10 + 20 units × $25) ÷ (10 units + 20 units)

= ($100 + $500) ÷ (30 units)

= ($600) ÷ (30 units)

= $20 per unit

The ending inventory units is

= 10 units + 20 units - 25 units

= 5 units

So, the ending inventory is

= 5 units × $20

= $100