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23 March, 13:38

Rogers Products uses a periodic inventory system. The company's records show the beginning inventory of PH4 oil filters on January 1 and the purchases of this item during the current year to be as follows. Jan. 1 Beginning inventory 11 units @ $ 3.00 $ 33.00 Feb. 23 Purchase 18 units @ $ 3.50 63.00 Apr. 20 Purchase 28 units @ $ 3.80 106.40 May 4 Purchase 37 units @ $ 4.00 148.00 Nov. 30 Purchase 20 units @ $ 5.00 100.00 Totals 114 units $ 450.40 A physical count indicates 25 units in inventory at year-end. Determine the cost of the ending inventory on the basis of each of the following methods of inventory valuation. a. Average cost. b. FIFO. c. LIFO.

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  1. 23 March, 16:41
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    a. Ending inventory value by average method is $ 98.77

    b. Ending inventory value by FIFO method is $ 120

    c. Ending inventory value by LIFO method is $ 82

    Explanation:

    Following are three types of Inventory valuation method.

    1) Average Method : It is calculated by dividing total cost of inventory purchased divided by total units purchased.

    In Periodic Inventory system,

    Weighted average unit cost = Total cost of materials purchased / Total no. of units purchased.

    Given data

    Beginning inventory = 11 units

    Date units Unit Cost Total Cost

    Beginning inventory 11 3 33

    Feb-23 18 3.5 63

    Apr-20 28 3.8 106.40

    May - 04 37 4 148

    Nov-30 20 5 100

    Total 114 450.4

    Weighted average unit cost = 450.4 / 114 = 3.95

    Ending inventory contains 25 units = 25 x 3.95 = 98.77

    2) FIFO: FIFO means First in First out. In this type of inventory valuation method, ending inventory is composed of most recently purchased items.

    Ending inventory by FIFO method is = (20 x 5) + (5 x 4) = 120.

    3) LIFO: LIFO means Last in First out. In this type of inventory valuation method, most recently purchased items or units are issued to the production.

    Ending inventory by LIFO method is = (11 x 3) + (14 x 3.5) = 82.

    During inflation, FIFO results higher income as the lowest cost items are issued to the production and results higher inventory.
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