Periodic Inventory by Three Methods; Cost of Merchandise Sold The units of an item available for sale during the year were as follows: Jan. 1 Inventory 1,800 units at $108 Mar. 10 Purchase 2,240 units at $110 Aug. 30 Purchase 2,000 units at $116 Dec. 12 Purchase 1,960 units at $120 There are 2,000 units of the item in the physical inventory at December 31. The periodic inventory system is used. Determine the inventory cost and the cost of merchandise sold by three methods. Cost of Merchandise Inventory and Cost of Merchandise Sold Inventory Method Merchandise Inventory Merchandise Sold First-in, first-out (FIFO) $ $ Last-in, first-out (LIFO) Weighted average cost

Explanation:

For computing the inventory cost and the cost of merchandise sold by three methods, first we have to find out the average unit price which is shown below:

Average unit price equals to

= Total amounts ÷ Total units

where,

Total amount = 1,800 units × $108 + 2,240 units × $110 + 2,000 units × $116 + 1,960 units × $120

= $194,400 + $246,400 + $232,000 + $235,200

= $908,000

Total units

= 1,800 units + 2,240 units + 2,000 units + 1,960 units

= 8,000 units

So, the average unit price is

= $908,000 ÷ 8,000 units

= $113.50

Now the inventory cost and the cost of merchandise sold by three methods are as follows:

Under the FIFO method

Inventory

= 40 units × $116 + 1,960 units × $120

= $4,640 + $235,200

= $239,840

Cost of goods sold

= $908,000 - $239,840

= $668,160

Under the LIFO method

Inventory

= 1,800 units × $108 + 200 units × $110

= $194,400 + $22,000

= $216,400

Cost of goods sold

= $908,000 - $216,400

= $691,600

Under the weighted average cost

Inventory

= 2,000 × $113.50

= $227,000

Cost of goods sold

= $908,000 - $227,000

= $681,000

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