Exercise-9 (Computation of ending inventory under FIFO and LIFO)

The Alpha merchandising company purchases product DX-5 directly from manufacturers and sell it to small retailers as well as customers. The following transactions occurred during the last month of  2016:

• Dec. 01: 800 units on hand @ \$40 each.
• Dec. 08: 600 units sold @ \$76 each.
• Dec. 14: 1,200 units purchased @ \$50 each.
• Dec. 18: 1,080 units sold @ \$76 each.
• Dec. 30: 800 units purchased @ \$60 each.

Required:

1. Assuming the Alpha merchandising company uses periodic inventory method, compute the cost of inventory on hand at December 31, 2016 under the following cost flow assumptions:
(a). First in, first out (FIFO)
(b). Last in, first out (LIFO)
2. Assuming the Alpha merchandising company uses a perpetual inventory method, compute the cost of inventory on hand at December 31, 2016 under the following cost flow assumptions:
(a). First in, first out (FIFO)
(b). Last in, first out (LIFO)

Solution:

(1) Periodic inventory method:

Number of units on January 31, 2013 = Units in beginning inventory + Units purchased during the month – Units sold during the month

= 800 units + *2,000 units – **1,680 units

= 1,120 units

*1,200 + 800

**600 + 1,080

a. FIFO method:

Cost of inventory on January 31, 2016 = (800 units × \$60) + (320 units × \$50)

= \$48,000 + \$16,000

= \$64,000

b. LIFO method:

Cost of inventory on January 31, 2016 = (800 units × \$40) + (320 units × \$50)

= \$32,000 + \$16,000

= \$48,000

(2). Perpetual inventory method:

We can determine the value of ending inventory by preparing two perpetual inventory cards – one using FIFO method and one using LIFO method.

a. FIFO method:

Under perpetual-fifo, the cost of inventory on December 31, 2016 is \$64,000 (see last row of balance column).

b. LIFO method:

Under perpetual-lifo, the cost of inventory on December 31, 2016 is \$62,000 (see last row of balance column).

2 Thoughts on Exercise-9 (Computation of ending inventory under FIFO and LIFO)

1. Ali

Really i have never seen such a precise and well explanatory web site. Simple wawoooooooooo…
Please also includes income statement and balance sheet exercises.
Thanks.