Question

The Shirt Shop had the following transactions for T-shirts for Year 1, its first year of operations: Jan. 20 Purchased 400 units @ $ 8 = $ 3,200 Apr. 21 Purchased 200 units @ $ 10 = 2,000 July 25 Purchased 280 units @ $ 13 = 3,640 Sept. 19 Purchased 90 units @ $ 15 = 1,350 During the year, The Shirt Shop sold 810 T-shirts for $20 each. Required a. Compute the amount of ending inventory The Shirt Shop would report on the balance sheet, assuming the following cost flow assumptions: (1) FIFO, (2) LIFO, and (3) weighted average. (Round cost per unit to 2 decimal places and final answers to the nearest whole dollar amount.)

Answer 1

Answer:

WA      1,682

LIFO      910

FIFO  2,260

Explanation:

$\left[\begin{array}{cccc}Date&Cost&Units&Subtotal\\ Jan 20th&8&400&3200\\ April 21th&10&200&2000\\ July 25th&13&280&3640\\ Sept 19th&15&90&1350\\ Total&10.51&970&10190\\\end{array}\right]$

We add the units purchase and the subtotal to get the total units available for sale.

Ending inventory physical units: 970 - 810 = 160 units

Then, we calculate for each method:

Weighted average:

cost of goods / available units = 10,190 / 970 =  10.51

160 units x 10.51 = 1,681.6‬

LIFO:

Ending inventory will be the oldest units:

160 units x 8 = 960

FIFO:

Ending inventory will be the newest units as the units are sold as soon as they come in

90 x 15 =  1,350

70 x 13 =     910

Total       2,260