Q37PGB_1 - Horngren'S Financial And Managerial Accounting

Question

Right Now Electronic Center began October with 100 units of merchandise inventory that cost \(70 each. During October, the store made the following purchases:

 

Oct. 3 35 units @ \) 82 each

12 45 units @ \( 84 each

18 75 units @ \) 90 each

 

Right Now uses the periodic inventory system, and the physical count at October 31indicates that 130 units of merchandise inventory are on hand.

 

Requirements

1. Determine the ending merchandise inventory and cost of goods sold amountsfor the October financial statements using the FIFO, LIFO, and weighted-averageinventory costing methods.

Step-by-Step Solution

Answer

	Inventory	COGS
FIFO	$11,350	$9,050
LIFO	$9,460	$10,940
Weighted Average	$10,400	$10,000

Step1: Using FIFO under a periodic system

$$\begin{gathered} \text{EndingInventory=Oct18purchasevalue+Oct12purchasevalue+Oct3purchasevaluefor10units} \\ \text{=}\left(75\times \$90\right)+\left(45\times \$84\right)+\left(10\times \$82\right) \\ =\$6,750+\$3,780+\$820 \\ =\$11,350 \end{gathered}$$

$$\begin{gathered} \text{Costofgoodssold=Openinginventoryvalue+TotalPurchasevalue-Endinginventoryvalue} \\ \text{=}\left(100\times \$70\right)+\left(35\times \$82+45\times \$84+75\times \$90\right)-\$11,350 \\ =\$7,000+\$13,400-\$11,350 \\ =\$9,050 \end{gathered}$$

Step 2: Using LIFO under periodic system

$$\begin{gathered} \text{EndingInventory=Openinginventoryvalue+Oct3purchasevaluefor30units} \\ \text{=}\left(100\times \$70\right)+\left(30\times \$82\right) \\ =\$7,000+\$2,460 \\ =\$9,460 \end{gathered}$$

$$\begin{gathered} \text{Costofgoodssold=Openinginventoryvalue+TotalPurchasevalue-Endinginventoryvalue} \\ \text{=}\left(100\times \$70\right)+\left(35\times \$82+45\times \$84+75\times \$90\right)-\$9,460 \\ =\$7,000+\$13,400-\$9,460 \\ =\$10,940 \end{gathered}$$

Step 3: Using weighted average under periodic system

$$\begin{gathered} \text{AvreageCost=}\frac{Openinginventoryvalue+TotalPurchasevalue}{Totalunitsforsale} \\ =\frac{\left(100\times \$70\right)+\left(35\times \$82+45\times \$84+75\times \$90\right)}{100+35+45+75} \\ =\frac{\$7,000+\$13,400}{255} \\ =\$80 \end{gathered}$$

$$\begin{gathered} \text{EndingInventory=EndingUnits×Averagecost} \\ \text{=130×\$80} \\ \text{=\$10,400} \end{gathered}$$

$$\begin{gathered} \text{Costofgoodssold=Openinginventoryvalue+TotalPurchasevalue-Endinginventoryvalue} \\ \text{=}\left(100\times \$70\right)+\left(35\times \$82+45\times \$84+75\times \$90\right)-\$10,400 \\ =\$7,000+\$13,400-\$10,400 \\ =\$10,000 \end{gathered}$$