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Hamilton Company uses a periodic inventory system. At the end of the annual accounting period, December 31 of the current year, the accounting records provided the following information for product 1: Units Unit Cost Inventory, December 31, prior year 1,960 $ 6 For the current year: Purchase, March 21 6,200 5 Purchase, August 1 4,020 3 Inventory, December 31, current year 2,980 Required: Compute ending inventory and cost of goods sold under FIFO, LIFO, and average cost inventory costing methods

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Answer:

Instructions are listed below.

Explanation:

Giving the following information:

Inventory, December 31= 1,960 units at $ 6

For the current year:

Purchase, March 21= 6,200 units at  $5

Purchase, August 1= 4,020 units at  $3

Inventory, December 31, current year 2,980 units

We need to determine the cost of inventory using the following methods:

LIFO (last-in, first-out)

Inventory= 1,960*6 + 1,020*5= $16,860

FIFO (first-in, first-out)

Inventory= 2,980*3= $8,940

Weighted Average:

Average cost= (6 + 5 + 3)/3= 4.67

Inventory= 2,980*4.67= $13,916.6

Parrain

The ending inventory and cost of goods sold under the various inventory costing methods are:

Goods sold during year:

= Opening stock + Purchases - closing stock

= 1,960 + 6,200 + 4,020 - 2,980

= 9,200 units

First-In, First-Out (FIFO)

Here the earlier goods are sold first. This means the ending inventory will be from the last purchases which cost $3.

Ending inventory :

= Closing stock x cost

= 2,980 x 3

= $8,940

Cost of goods sold:

= (1,960 x 6) + (6,200 x 5) + ( (4,020 - 2,980) x 3)

= $45,880

Last-In, First Out(LIFO)

The goods purchased last will be sold first.

Ending inventory:

= (1,960 x 6) + ( (2,980 - 1,960) x 5)

= $16,860

Cost of goods sold:

= (4,020 x 3) + ((9,200 - 4,020) x 5)

= $37,960

Average cost:

Here the inventory cost is a weighted average of the various costs.

Cost of inventory = Total cost of purchases / Units purchased

= ((1,960 x 6) + (6,200 x 5) + (4,020 x 3)) / (1,960 + 6,200 + 4,020)

= $4.50

Ending inventory:

= Closing stock x cost

= 2,980 x 4.5

= $13,410

Cost of goods sold:

= Goods sold x price

= 9,200 x 4.50

= $41,400

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