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

The Alpha merchandising company purchases product DX-5 directly from manufacturers and sells 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 December 31, 2016 = 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 December 31, 2016 = (800 units × $60) + (320 units × $50)

= $48,000 + $16,000

= $64,000

b. LIFO method:

Cost of inventory on December 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:

exercise-9-icm-img1

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

b. LIFO method:

exercise-9-icm-img2

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

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6 Comments 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.

  2. Swati Kapoor

    This website and these exercises are Extremely helpful. I am speechless at how good this is for CMA student. Thank you thank you !!!

  3. sufyen mewuded

    can you sent any doc by email my dear

  4. Liz

    How the fuck do you get 320 units? No where does it state that number.

    1. Accounting For Management

      1,120 units – 800 units = 320 units

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