University:
Grand Rapids Community College
Course:
Financial and Managerial Accounting: Information for Decisions - John J. Wild
Academic year:

2024
Views:

382

Pages:

2
Author:

stud_ice13

To compute the cost assigned to ending inventory and cost of goods sold (COGS) under the periodic inventory system using the Specific Identification (SI), FIFO, LIFO, and Weighted Average (WA) methods, we'll go through each method step-by-step using the data from Trekking, a sporting goods store. 1. Specific Identification (SI) Under specific identification, each unit sold or remaining in inventory is matched to its specific purchase price. The ending inventory consists of 12 units, and the data shows the exact costs associated with the bikes sold and the remaining ones. • • • Goods Available for Sale: $5,990 (from Exhibit 5A.1) Ending Inventory (12 units): o 10 units from the August 1 purchase at $110 each = $1,100 o 2 units from the August 3 purchase at $154 each = $308 o Total Ending Inventory = $1,408 COGS: o Total cost of the sold bikes = $5,990 − $1,408 = $4,582 2. FIFO (First-In, First-Out) FIFO assumes the first units purchased are the first to be sold, leaving the most recent purchases in inventory. • • • Goods Available for Sale: $5,990 COGS: o 10 units from August 1 at $110 = $1,100 o 15 units from August 3 at $154 = $2,310 o 18 units from August 17 at $65 = $1,170 o Total COGS = $4,570 Ending Inventory (12 units remaining): o 12 units from the August 28 purchase at $118 each = $1,420 3. LIFO (Last-In, First-Out) LIFO assumes the most recent units purchased are sold first, leaving the oldest purchases in inventory. • • • Goods Available for Sale: $5,990 COGS: o 10 units from August 28 at $118 = $1,180 o 20 units from August 17 at $65 = $1,300 o 13 units from August 3 at $154 = $2,002 o Total COGS = $4,868 Ending Inventory (12 units remaining): o 10 units from August 1 at $110 = $1,100 o o 2 units from August 3 at $154 = $308 Total Ending Inventory = $1,122 4. Weighted Average (WA) In the weighted average method, the cost per unit is averaged across all units available for sale. • • • • Goods Available for Sale: $5,990 Average Cost Per Unit = $5,990 ÷ 55 units = $108.91 per unit COGS: o 43 units sold × $108.91 = $4,683 Ending Inventory (12 units remaining): o 12 units × $108.91 = $1,307 Summary of Results: Method COGS Ending Inventory Specific Identification $4,582 $1,408 FIFO $4,570 $1,420 LIFO $4,868 $1,122 Weighted Average $4,683 $1,307 Each method produces different outcomes for COGS and ending inventory. FIFO typically results in lower COGS and higher ending inventory, while LIFO gives higher COGS and lower ending inventory, especially in periods of rising prices, as seen in this example.