In its first month of operations, Giffin Company made three purchases of merchandise in the following sequence: (1) 260 units at $5, (2) 360 units at $7, and (3) 460 units at $8. Assuming there are 160 units on hand at the end of the period, compute the cost of the ending inventory under (a) the FIFO method and (b) the LIFO method. Giffin uses a periodic inventory system.
fifo $1280; LIFO $960
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In its first month of operations, Giffin Company made three purchases of merchandise in the following sequence: (1) 300 units at $6, (2) 400 units at $8, and (3) 500 units at $9. Assuming there are 200 units on hand at the end of the period.
To calculate the cost of the ending inventory under the FIFO method and the LIFO method, you need to determine the cost of the units sold and calculate the remaining cost of the inventory.
(a) FIFO Method:
Under the FIFO (First-In, First-Out) method, the cost of the units sold is calculated based on the assumption that the first units purchased are the first ones sold. Therefore, the units purchased first have a lower cost compared to the later purchases.
Step 1: Determine the cost of the units sold.
To calculate the cost of the units sold, we need to subtract the 160 units on hand at the end of the period from the total units purchased.
Total units purchased = (1) 260 units + (2) 360 units + (3) 460 units = 1,080 units
Cost of units sold = Total units purchased - Units on hand = 1,080 units - 160 units = 920 units
Step 2: Calculate the cost of the ending inventory.
To determine the cost of the ending inventory, we need to consider the remaining units and their costs. Since the FIFO method assumes that the first units purchased are the first ones sold, the cost of the ending inventory consists of the cost of the most recent purchase.
Cost of the ending inventory = Units on hand at the end of the period * Cost per unit of the most recent purchase
Cost of the ending inventory = 160 units * $8 = $1,280
Therefore, under the FIFO method, the cost of the ending inventory is $1,280.
(b) LIFO Method:
Under the LIFO (Last-In, First-Out) method, the cost of the units sold is calculated based on the assumption that the most recently purchased units are the first ones sold. Therefore, the units from the most recent purchases have a higher cost compared to the earlier purchases.
Step 1: Determine the cost of the units sold.
To calculate the cost of the units sold, we use the same calculation as in the FIFO method:
Cost of units sold = Total units purchased - Units on hand = 1,080 units - 160 units = 920 units
Step 2: Calculate the cost of the ending inventory.
To determine the cost of the ending inventory, we need to consider the remaining units and their costs. Since the LIFO method assumes that the most recently purchased units are sold first, the cost of the ending inventory consists of the cost of the earliest purchase.
Cost of the ending inventory = Units on hand at the end of the period * Cost per unit of the earliest purchase
Cost of the ending inventory = 160 units * $5 = $800
Therefore, under the LIFO method, the cost of the ending inventory is $800.