Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 120

Cost-flow assumptions—FIFO, LIFO, and weighted average using a periodic system The following data are available for Sellco for the fiscal year ended on January 31, 2011:

Sales	1,600 units
Beginning inventory	500 units @ $4
Purchases, in chronological order	600 units @ $5
	800 units @ $6
	400 units @ $8

Required

a. Calculate cost of goods sold and ending inventory under the following cost-flow assumptions (using a periodic inventory system):

1. FIFO.

2. LIFO.

Weighted average. Round the unit cost answer to two decimal places and ending inventory to the nearest $10.

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b. Assume that net income using the weighted-average cost-flow assumption is $58,000. Calculate net income under FIFO and LIFO.

Step 1 of 11

First-In-First-Out (FIFO):

First-in-first-out under this method the good first purchased are the goods first sold. This will reduce the obsolescence of inventory purchased at the earliest.

Last-In-First-Out (LIFO):

Under LIFO the most recently purchased inventory is sold first and cost of ending inventory is the purchases of oldest items.

Weighted average method:

Under this method inventory is reported at average cost of goods. It is calculated as total cost of inventory purchased at different prices divided with total number of goods purchased.