Problem 7-204 [LO 7-3] The college campus bookstore uses a periodic inventory sy
ID: 2545804 • Letter: P
Question
Problem 7-204 [LO 7-3] The college campus bookstore uses a periodic inventory system. The bookstore purchases 430 copies of a textbook at $63 each in June, 965 copies in August at $65 each, and 630 copies in December at $68 each. The bookstore sold 1,870 copies of the textbook during the year. Required Calculate the company's ending inventory and cost of goods sold using the each of following inventory costing methods. a. FIFO Cost of Goods Sold Ending Inventory b. LIFO Cost of Goods Sold Ending Inventory c. Weighted Average cost method. (Round your intermediate calculations to 2 decimal places and final answers to the nearest dollar amount.) Cost of Goods Sold Ending InventoryExplanation / Answer
Compute number of units in ending inventory as follows:
Total number of units purchased = 430 + 965 + 630 = 2,025
Number of units sold = 1,870
Therefore,
Units in ending inventory = 2,025 - 1,870 = 155
Compute cost of goods available for sale as follows:
a. FIFO
Under FIFO it is assumed that units brought into inventory are sold first. Therefore, ending inventory will contain units that were purchased most recently.
Thus,
Ending inventory = 155 units x $68 = $10,540
Cost of goods sold = Cost of goods available for sale - Ending inventory = $132,655 - $10,540 = $122,115
b. LIFO
Under LIFO it is assumed that units brought into inventory most recently will be sold first. Therefore, ending inventory will contain units that were purchased earliest.
Thus,
Ending inventory = 155 units x $63 = $9,765
Cost of goods sold = Cost of goods available for sale - Ending inventory = $132,655 - $9,765 = $122,890
c. Weighted average method
Under weighted average method, it is assumed that the units brought into inventory were sold evenly through out the period. Therefore, average cost of one unit is calculated first and then the cost of goods sold and ending inventory.
Average cost of one unit
= Cost of goods available for sale/Number of units available for sale
= $132,655/(430+965+630)
= $65.51
Thus,
Ending inventory = 155 x $65.51 = $10,154
Cost of goods sold = Cost of goods available for sale - Ending inventory = $132,655 - $10,154 = $122,501
Month Units Unit price Purchases amount June 430 63 27090 August 965 65 62725 December 630 68 42840 Cost of goods available for sale 132655