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At the beginning of the current period, Chen carried 1,000 units of its product with a unit cost of $10. A summary of purchases during the current period follows. During the period, Chen sold 2,800 units.Units Unit Cost CostBeginning Inventory 1,000 $ 10 $ 10,000Purchase #1 1,800 11 19,800Purchase #2 800 13 10,400Purchase #3 1,200 15 18,000(a) Assume that Chen uses the first-in, first-out method. Compute both cost of good sold for the current period and the ending inventory balance.
(b) Assume that Chen uses the last-in, first-out method. Compute both cost of good sold for the current period and the ending inventory balance.
(c) Assume that Chen uses the average cost method. Compute both cost of good sold for the current period and the ending inventory balance.

Respuesta :

Answer:

a)FIFO Method: Cost of Goods Sold  $ 29,800, Ending Inventory  $ 28,400

b)LIFO Method: Cost of goods sold $ 37,200, Ending inventory $ 21,000

c) Average Cost: Cost of goods sold $ 33,950, Ending inventory $ 24,250  

Explanation:

First of all we make a table of inventory and purchases to make the required calculations:

                                                          Units    Cost per unit     Inventory Value

Opening Inventory                            1,000         $ 10                    $ 10,000

Purchase 1                                       1.800          $ 11                     $ 19,800

Purchase 2                                           800         $ 13                    $  10,400

Purchase 3                                        1,200          $ 15                    $ 18,000

Units sold                                         (2,800)

Ending inventory                              2,000

Cost of goods sold Under First in First Out method

The units sold shall be valued at the opening inventory + from Purchase 1,

(1000 units * $ 10) + ( 1800 units * $ 11)= $10,000 +$ 19800 = $29,800

Ending inventory under First in First Out Method    

The ending inventory shall be from the most recent purchases, so 1200 units from purchase 3 and 800 units from purchase 2

(1200 units *$ 15) + (800 units * $ 13) = $ 18,000 + $ 10,400 = $ 28,400

Cost of goods sold Under Last in First Out method

The units sold shall be valued from the most recent purchase, so 1200 units from  purchase 3, 800 units from purchase 2 and 800 units from purchase 1

(1200 units * $ 15)+ (800 units * $ 13) + (800 units * $ 11) = $ 18,000+$10,400 + $ 8,800 = $ 37,200

Ending inventory under Last in First Out Method

The ending units shall be valued at the opening inventory plus the first purchases. So 1000 units form beginning inventory and 1000 units from Purchase 1

( 1000 units * $ 10) + ( 1000 units * $ 11) = $ 10,000 + $ 11,000  = $ 21,000

Cost of goods sold Under Average Cost method

The average unit cost is determined for the opening inventory and the purchases during the period.

$ 10,000 (opening inventory) + $ 19,800 (purchase 1)  + $ 10,400 ( purchase 2) + $ 18,000 purchase 3 = $ 58,200

Total units available 1000 + 1800 +800 + 1200 = 4,800

Unit Cost on average basis = $ 58,200/ 4,800 units = $12.125

Cost of goods sold 2,800 units * $ 12.125 = $ 33,950

Ending Inventory under Average Cost Method

2000 units * $ 12.125 = $24,250

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